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Making sense of your closing costs.

By
Real Estate Agent with The Broker Network of Central Oregon

Making Sense of Your Closing Cost

When you go to a lender to get and idea of what to expect for closing costs it can seem a little overwhelming.   Below is a break down to help you understand your good faith estimate a little better. 

Interest rate discount points are fees paid up front to the lender in exchange for a lower interest rate on a mortgage loan.   Paying points lowers your mortgage rate because the lender is getting a prepaid portion of the interest rather than collecting it in the payments across the term of the loan.   Points can be paid by the buyer/borrower or seller, or split between the two.  A single point is equal to 1 percent of the loan amount.  Who pays the points depends on what is negotiated in the purchase contract and what is allowable under the terms of the mortgage loan.

The loan origination fee, which can also be called a broker origination fee or broker fee, is a person's payment to their broker and the broker's company for their time in coordinating the home loan.  The fee varies from 1 to 2 percent of the loan amount.  Your broker will usually charge a processing fee in addition, which covers the overhead of preparing and processing the loan documents.  At Countrywide Home Loans we do not charge you an origination fee because you are coming directly to Countrywide for the home loan.

Escrow fees are paid to a third party organization, usually a title company, which handles the funds exchanged throughout the transaction.

Lender fees usually include courier, document preparation, underwriting, and wire transfer fees.  The amount listed on the good faith estimate for these fees usually won't vary.  Tax service fees are also charged by lenders to cover the costs involved in tax related processes.  Some third party services may include appraisals and credit reports.  Both services are paid for at closing.   The fee for the credit report doesn't usually vary from the good faith estimate, but the appraisal companies may charge different rates.

Title company fees will cover the cost of title insurance for both the buyer and the lender.  It is customary for the seller to pay for their portion of the title insurance.  The cost ranges from 0.3 percent to 0.6 percent of the value of the home. 

Prepaid closing costs and escrows are costs you pay to yourself.  This includes items such as prepaid interest, property taxes and hazard insurance.  This money goes to the buyer's escrow account to be used on their behalf to meet tax and insurance obligations.  The total amount of fees and prepaid items required, plus the down payment and minus seller contributions comes down to the total cash required for closing.  A reputable lender will be able to provide a good faith estimate that is very close to the amount of the final settlement.

» Bill Burress Nationwide Mortgage Originator
» Bill Burress Nationwide Mortgage Originator - Fort Myers, FL

Chris:

Good Glossary of terms for the FTHB.

Oct 10, 2007 08:19 AM
Mark Pilatowski
myClosingSPACE - Manhattan, NY

Nice breakdown Chris. If you have a chance I would love to get some help from you (and anyone else who would like to assist). I am trying to put together an Ask The Title Expert series on our business site blog and I need to get some questions to get the ball rolling. If there are any questions that you would like to see explored please let me know here or you can email me.

To see more about what I am talking about you can visit my AR Blog the myClosingSPACE Blog.

Oct 11, 2007 01:50 AM