CLOSING COST HELP Disclaimer: The information on this page is for reference only Please contact your attorney or lender for clarification on all your closing cost questions! What are closing costs? Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed. Non-recurring closing costs Lenders Title Insurance - Lender will require a title insurance policy whether you are purchasing or refinancing an existing loan. This gives them a guarantee (by the title insurance company) of what liens are associated with the property the day the loan funds. Escrow or Attorney's fee - An escrow company or Attorney's office performs, essentially, two functions: getting the paperwork together for you to sign and managing the escrow funds. They get all the money from everyone who has to put money in and they dispense it to whomever needs to be paid. Appraisal Fee - This goes to the appraiser. Often it is paid at the time of inspection. Otherwise it is collected at closing. Appraisal Review Fee - If the appraiser is not on the list of approved appraisers for the lender or if the value seems, shall we say, a bit creative, or if it is a large loan the lender will request that another appraiser "review" the appraisal. This may be a desk review (just going over the paperwork and the databases) or a field review (going out and taking a look at the property). Brokers origination fee - This is a number that varies widely. In some state a common practice is for the broker to charge a 1% "origination fee". Some brokers require an "up front" non-refundable deposit. Lender's Fees - These vary over a wide range and are sometimes divided into 2 or 3 pieces. This is what the lender is charging to underwrite your file, print the documents and fund the loan. The cost varies but can be in the hundreds to thousands. Flood Certification - This specifies how susceptible the lot is to flooding. If it is in a flood zone you need flood insurance. The Flood Certification is an assurance to the lender as to what the flood zone classification is. The Flood Certification is not flood insurance, it is a guarantee (in most cases) that flood insurance is not needed. Tax Service Fee - This goes to a data processing entity which assumes the responsibility of informing your lender if you become delinquent in your property taxes. Credit Report - This is what the broker and/or lender pay to get your credit report. Statement Fee - If this is a refinance, your old lender may charge as much as $60 for providing the payoff information to the escrow agent. Reconveyance Fee - Charged by your old lender in the case of a refinancing. This is the cost of generating and recording the Deed of Reconveyance, a public record that your old loan is paid off. Notary and Recording Fees - Someone is going to charge you to notarize certain loan documents and the Country Recorder is going to charge the escrow company for recording them. Other Stuff - Courier fees, Overnight Delivery and wire transfer of the loan funds could run around $100 Points This is a one-time fee that you can spend to bring your interest rate down over the life of the loan. This is a "you pay me now or you pay me later proposition". Discuss this with your Loan Officer for more details. Recurring closing costs This is the stuff that you have to pay anyway but will pay early because of the timing of your loan. This is one area that you must pay attention to when refinancing because 1) people's quotes may not be consistent and 2) if you do not make allowances you may not have enough money to close. Recurring closing costs consist of: Prepaid Interest - Take a time out and remember this: mortgage interest is paid in arrears. That is, when you are making your December payment, it is for the use of the money for November. If your loan is funding on December 15 and the first payment date is February 1, then you must pay interest on the new loan from December 15 to December 31. Thus, the expression "prepaid interest". If you are refinancing you must pay interest on the old loan until the day that the old lender receives the funds. This usually has the effect of creating an "overlap" of at least 2 days during which you are paying interest to both lenders. To mitigate this the lending industry trys to avoid funding loans on Friday's. Otherwise, you must pay at least 4 days "overlapping interest". *** An exception to this is VA loans. Here, one must pay interest for the entire month in which the loan funds. Property Taxes - These are typically prorated as of the day of closing where the seller is responsible for taxes prior to the date of closing and the buyer is responsible for the taxes after the date of closing. Insurance - When you loan is funding your lender may require that 6 months or one year of "fire" insurance be in place. This is important in the case of refinancing when you have, say, 3 months left on your policy. You will have to plan on paying another half year at least. *** This must be coordinated between the closing agent and your insurance agent or broker. If your property is a condo and insurance is paid thru the homeowners association then this is not relevant. Impounds - Private Mortgage Insurance may require these. If you are refinancing near the time when your tax payment is due (the discussion above) this is another pain in the neck. Your old lender may have all or most of your tax payment impounded but will be unwilling to part with it before they are paid off. Thus, you have to pay for one installment of your taxes and will be refunded the impound from your old lender. Apart from this detail, impounds consist of a certain number of months of PMI, taxes and insurance. Fees associated with purchase transactions Owners title insurance policy - This is typically and optional policy but can save you a lot of money if problems arise in the future related to the title. This you will keep as long as you own the property. If you refinance, you will not need a new owner's policy but you will need a new lender's policy. Inspections - Termite, roof, septic (for rural property), surveys and many others. These inspections may be optional depending on your area but provide the requesting party the assurance of what the condition of the property may be in. Transfer Fees - These are charged by the county and municipalities, vary greatly. Prorations - The seller may have prepaid part of the property tax for the period during which you own the home and will be entitled to a reimbursement from you. ***Note that when we talk about "no cost" loans we are talking only about the "non-recurring" closing costs." NOTE: SOURCE OF BULLETS: slightly modified from http://www.efmoody.com/realestate/closing.html for our readers. Who pays the closing costs? Closing costs are either paid by the home seller or home buyer. It often depends on local custom and what the buyer or seller negotiates. Why do I need a title report? As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning. How can I save on closing costs? Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save: * Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller. * Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs. * Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront. * Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges. * Rent-to-Own Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase. * Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application. Where can I get more information about closing costs? For more on closing costs, ask for the "Consumer's Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163.