Closing Costs

There are certain standard costs associated with closing the sale of a house. These fees are split as spelled out in the sales contract between the buyer and the seller.

I will walk you through the closing costs, answering any questions you may have explaining which costs are decreed by law to be yours and which are negotiable.

Standard Closing Costs Loan-Related Costs Loan Origination Fee Points (optional) Appraisal Fee Credit Report Interest Payment Escrow Account Taxes Property Taxes Transfer Taxes and Recording Fees Insurance Homeowners Insurance Flood or Quake Insurance Private Mortgage Insurance (PMI) Title Insurance

Insurance Closing Costs

Homeowners Insurance This insurance covers replacement costs for damages caused by fire, wind or other disaster that might affect the value of the property. Typically, the insurance also includes personal liability and theft coverage.

Flood or Quake Insurance Additional hazard insurance coverage that is required for homes located in a designated hazard zone as established by the Federal Emergency Management Agency (FEMA). An appraiser, inspector, or your realtor can let you know if a property resides in a hazard zone.

Private Mortgage Insurance (PMI) Insurance required for conventional mortgage loans when the borrowers down payment on the house is less than 20 percent of the loan value.

Title Insurance This policy protects both the buyer and lender by insuring a clear chain of title. (In other words, it insures that that the person who sells the house has the legal right to do so.)

 

Good Faith Estimate

Buyers will receive a Good Faith Estimate of closing costs at the time the loan application is submitted to the lender. The estimate is based on the loan officers past experience and may not include all the closing costs.

Loan-Related Closing Costs

Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.

Credit Report
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.

Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.

Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.

I will be glad to review the Good Faith Estimate, answering questions and highlighting missing costs and estimates I believe to be low. I am always here to answer your questions and explain each step in the loan process you are unsure of or have concerns about.

Should you consider financing closing costs, escrow reserves, or other cash needed at closing?

If you have built up some equity in your home, when you refinance, you may be able to cash out some of that equity to pay off credit cards or other revolving debt, improve your home, help pay for college, or anything else you can think of. The same is true of refinancing costs: If you have enough equity in your home, you may be able to roll some of the cash due at closing into your loan.

Some of the cash needed to close as its sometimes called includes settlement costs and fees, prepaid interest, escrow reserves, state or local government charges, or even extra funds needed to pay off your existing mortgage. Some or all of those costs can sometimes be financed as part of your new mortgage loan.

But you have to be careful. It is OFTEN NOT the case that you can borrow up to 100 percent of your homes value. Many loan programs are based on what is called a loan-to-value ratio. You may qualify for a very advantageous refinanced mortgage if you borrow no more than 70 percent of your homes value, but may not qualify for the same terms if you borrow 80 percent. We can help you qualify for refinance loan programs for as much as 95 percent of your homes value in most cases, but the lower your loan-to-value ratio (that is, the less you borrow), the better terms youll generally qualify for.

The bottom line is that in many cases you can reduce your up-front costs for refinancing your mortgage in exchange for higher monthly payments for the life of the loan. But whether, and to what extent, you can do this depends on the value of your home and the amount of your new mortgage, and what options you decide are best for you.

Many people find that its advantageous to pay the cash needed at closing from checking, savings or money market accounts or from other assets. This is because the less you borrow on the new refinanced loan, the lower your monthly payment will be. But well work with you to see if there is an advantageous refinancing program for you based on your ability and willingness to pay closing costs and other fees and the amount you wish to borrow.

We want to make the best loan for you, work for you!