We have tried to put together a
complete list of closing costs. Some of these costs
may not apply to you.
APPRAISAL
FEE
This is charged to pay an appraiser to research and
assess the market value of the property on which a mortgage
is being placed. Instead of being charged for separately,
this fee may be charged for as part of a mortgage application
fee.
COURIER/MESSENGER
FEES
This fee pays for overnight courier services and messenger
services used to transport documents to and from the
lender and to and from the local county courthouse where
the deed and mortgage are recorded.
CREDIT
REPORT FEE
This is charged to pay a credit service bureau to provide
the lender with a report detailing a borrower's credit
history. Instead of being charged for separately, this
fee may also be part of a mortgage application fee.
DOCUMENT
PREPARATION FEE
This is sometimes charged by lenders to offset costs
associated with preparing paperwork for a loan closing.
FLOOD CERTIFICATION
FEE
This is charged to offset fees paid by lenders to flood
service companies to determine initially and on an ongoing
basis, whether properties on which the lender has a
mortgage are part of or become part of a "flood
hazard area" as determined by appropriate Federal
agencies. If so, the property owner is required to obtain
flood insurance.
HAZARD
INSURANCE ESCROW
Similar to real estate tax escrows, many lenders require
that they collect 1/12 of the property's annual hazard
insurance premium with each mortgage payment to fund
an escrow account from which the lender will pay the
premium when it becomes due. (Hazard insurance is property
insurance that you are required to purchase to cover
any damage that may occur to the property itself or
to someone while in or on the property.) Even though
in a purchase transaction you are required to pay the
first year's premium prior to or at the closing and
in a refinance transaction the insurance may be paid
up for many months following the closing, the escrow
insures that the lender will have enough money in your
escrow account when the premium next becomes due. The
lender is also entitled to collect an additional amount
to provide a one to two month "buffer" in
your escrow account. At closing, hazard insurance escrow
requirements generally range from two months in purchase
transactions to anywhere from one to eleven months in
refinance transactions.
INSPECTION
FEE
This may be charged if a lender has to have someone
inspect a property after an appraisal has been done.
For example, if work being done to a property is not
completed at the time the appraiser viewed the property.
MORTGAGE
INSURANCE
In the event that the loan you are requesting from the
lender exceeds 80% of the market value of the property
being mortgaged, the lender will generally require you
to pay for obtaining a mortgage insurance policy. This
protects the lender if you default on your loan and
the equity in the property is not sufficient to cover
any losses the lender incurs as a result of that default.
Depending on the amount by which the "loan to value
ratio" exceeds 80%, the first year's premium generally
ranges from .35% of the loan amount to 1% of the loan
amount. The first year's premium, which is generally
higher than subsequent premium amounts, is sometimes
paid at time of closing.
MORTGAGE
INSURANCE ESCROW
In the event you are required to obtain mortgage insurance,
as described above, the lender will generally require
that they collect 1/12 of your mortgage insurance premium
with each mortgage payment to be able to pay the premium
when it next becomes due. The first year's premium is
sometimes paid at closing with an additional one or
two month payment being collected to begin the escrow
account.
POINTS
These are fees charged by lenders that help lenders
offset the costs lenders incur by providing you with
mortgage funds. One point equals 1% of the loan amount.
In a typical transaction, a borrower pays from 0 -2
points to the lender. The number of points is directly
related to the interest rate charged by the lender.
The more points a borrower pays, the lower the interest
rate and vice versa.
PREPAID
INTEREST
At the time you obtain a mortgage loan your first payment
is generally due on the first day of the second month
following your loan closing. That is because mortgages
are generally paid "in arrears". (In other
words, the payment being made on the first day of the
month is for the interest due for the month preceding
the payment.) For example, if you close on the 15th
day of January, your first payment will be due on March
1 and that payment will pay for the interest accrued
during the month of February. Therefore, the lender
at closing, will charge you for the interest due for
the period from the date of the closing to the beginning
of the following month. (In our example, that period
would be from January 15 to February 1.)
As a result, depending on the day of the month in which
you close, prepaid interest can be from 0 days to 30
days. Prepaid interest (on a per diem basis) is calculated
by multiplying the loan amount by the annual interest
rate and dividing that number by 360 or 365 (depending
on the lender).
REAL ESTATE
TAX ESCROW
Many lenders will require that they collect 1/12 of
the property's real estate taxes with each monthly mortgage
payment that you make to fund a tax escrow account from
which the lender wil make the real estate tax payments
as they become due. Since real estate tax payments are
due at different times during the year, the lender may
need to collect all or a portion of the next real estate
tax payment at the time of your loan closing (depending
on the month in which the closing occurs) to insure
that they have enough money in your escrow account when
the next tax payment becomes due. The lender is also
entitled to collect an additional amount to provide
a one to two month "buffer" in your escrow
account.
SURVEY
FEES
This fee is charged to pay a surveyor/engineer to survey
the property being mortgaged and prepare a "plot
plan" which includes a certification that the structures
and other improvements on the property do not violate
any property laws and do not encroach upon anyone else's
property.
TITLE SEARCH
FEE / TITLE EXAMINATION FEE
These fees (generally expressed as either a title search
fee or a title examination fee) are charged to pay for
the cost of researching and/or examining the records
of the county in which the property lies to determine
that the title to the property is free and clear of
all defects, liens and encumbrances that could affect
the use and/or value of the property.
TITLE INSURANCE
FEE
This fee is charged to pay for a title insurance policy
(known as a "lenders title insurance policy"
which protects the lender in the event there is a defect
in the title to the property. Most lenders require that
such a policy be purchased by the borrower at closing.
The borrower has the option of purchasing an "owner's
title insurance policy" to protect the borrower's
interest in the property in the event there is a defect
in the title, for an additional premium. However, an
owner's policy is not required by the lender.
UNDERWRITING
FEE / PROCESSING FEE
These are types of fees charged by some lenders to offset
the costs lenders incur in reviewing a borrower's application
for a mortgage loan.
Information provided by INFOTRAK National
Data Services
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