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    Email: joe@joemetzler.com

  • Mortgage Closing Cost Terms Descriptions and Breakdowns, Who Pays What, and How they Can Be Paid

    You will find many of these items on your Loan Estimate (formerly known as a Good Faith Estimate) or other closing cost breakdown a lender may provide. This is by no means all inclusive, and many lender lump many smaller fees into one larger one.

    NOTE: As of January 1, 2010 - the Good Faith Estimate form changed and is now known as a Loan Estimate (LE). The layout is different and confusing for those familiar with the old form. Loan origination fees, which used to be listed separately, and now lumped together with other fees, making it appear origination is higher than the standard 1%. 

    • Lender’s Loan Origination Fee - A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount, and is normally 1% of the loan amount. This is NOT "Discount Points" Any lender not showing an origination fee is NOT working for free, and you didn't find some awesome deal. The costs are just being charged elsewhere by either increasing the offered interest rate (most common), by adding additional fees elsewhere, or if a broker, by charging a broker fee.
    • Lender’s Loan Discount Fee (POINTS) - Also known as "Points". A one time only fee charged by the lender to lower the interest rate normally charged. Each point is equal to 1% of the mortgage amount. Paying points to lower your interest rate may or may not be a good idea. It depends on your personal situation. Contact us for details.
    • Appraisal Fee - We need an appraisal in order to determine the security of the loan and the borrower’s Loan to Value (LTV) in most cases. This fee is generally paid up-front, and is usually the only up-front cost.  
    • Credit Report - This fee is charged to pay a credit service agency to provide the lender with a full report detailing a borrower's credit history. We obtain an independent credit report, therefore we cannot reuse any prior credit report you may have. The credit listing is used as an indicator of the borrower willingness to repay the debt. many lenders do not charge this separately, and is often lumped into administration type fees.
    • Tax Service Fee - The lender may require researching and/or examining the records of the Registry of Deeds for the county in which the property lies. Each property is reviewed to confirm that the taxes are paid in full and up to date. Any unpaid property taxes are a liability to the lender. This fee is usually NOT charged in Minnesota.
    • Broker Fee - Like loan origination, this is a fee charged to the borrower by the lender for making a mortgage loan. As the name implies, it is usually charged by a mortgage broker in lieu or loan origination fees.
    • Application Fee - Some lenders collect appraisal & credit report costs up-front and call it an application fee. Be wary if a lender has an application fee AND a separate appraisal & credit report fee. I personally feel you should NEVER do business with a company that requires this fee. Even if you don't do the loan, they keep this money!
    • Processing Fee - Many think this is a junk fee. It typically is not. This fee pays for the physical processing of your loan (submitting to underwriting, paper, files, copying, etc.).
    • Underwriting Fee - This is the final lender, PMI company, or end investor's fee for reviewing your loan application. The underwriting fee has grown significantly higher the past few years as lenders try to recover operating costs. This fee varies depending on many factors, including loan type. It is typical to see anywhere from $500 for a conforming loan, to $800 for an FHA or VA loan.
    • Wire Transfer Fee - When you purchase the property, your lender might wire funds to an account, known as an escrow account of the title company, to cover the loan amount and the closing costs. The receiving account charges a nominal fee for the wire transfer.
    • Administration Fee - Many lenders use this as a place to put all the little fees on a loan, like credit report, 4506t, fraud reports, and verification of employment costs. 
    • Commitment Fee.
      Another "administration fee" charged by lenders many encompass a bunch of smaller fees, lumped into one number. (courier fees, flood certifications, etc).
    • Days of Interest - Lender’s charge interest from the very first day they fund your loan. The lender will require you to pay, at the time of closing, the interest charge from the date the loan is funded until the start of the following month. For example; If you close on March 20th, you will pay 10 days of interest. If you close on March 5th, you will pay 25 days of interest.
    • Mortgage Insurance premium - Private Mortgage Insurance (PMI) may be required on certain loans (usually those with less than 20% down). It is paid by the borrower and insures the lender against certain losses in the event of a foreclosure, and is considered a 'pre-paid' cost.
    • Up-front mortgage insurance, or Funding fee - This is a one time charge, typically added to your loan amount for government loans like FHA or VA loans. It can also be paid out of pocket at closing.
    • Hazard (Homeowners) Insurance - The lender will require you to insure the property you are buying, since the property is the collateral for the loan. At the time of closing you must pay the entire first year’s premium, for hazards such as natural disasters up front. Thereafter, 1/12th of the yearly premium will be paid each month so the lender has enough in your escrow account to pay for the next years premium when due. This is considered a 'pre-paid' cost.
    • State/County Property Taxes - Each state and county differs regarding the taxes that are due and payable up front. It also may vary greatly depending on what month you close. These are considered a 'pre-paid' cost. Call for details. MANY lenders under-estimate this charge on their estimates.
    • Settlement or Closing Fee - The fee paid to the Title Company for handling all the financial transfers and payments associated with the transaction. This is only one of many fees charged by the title company.
    • Doc Prep - A fee charged to actually draw up the legal documents you will be signing at closing.
    • Title Insurance - Guarantees that your new home has no other lien claims on the property and guarantees your undisputed ownership. Charged by the title company, but your lender requires that you have lenders title insurance on the home. Owners title insurance is also available for a small extra charge, and is highly recommended.
    • Recording Fees - To create a public record of your legal ownership of the property, the lenders notify the county government to record the transaction. This fee, which varies by state, is paid to the county.
    • City/County/Tax/Stamps - Stamps, affixed to the deed, showing the amount of transfer tax paid. Most states stamp the deed rather then actually affixing a stamp. It is a transfer tax that is collected, in some localities, whenever property changes hands. Minnesota's state tax is .0023% of the loan amount on ALL loans. (.0024% in Hennepin and Ramsey County)
    • Flood Certification Fee - Paid for a flood certification that states whether or not you are in a flood zone as determined by FEMA. The lender is required to track the life of the loan to identify the flood zone status. If a property is later rezoned into a flood area, the lender will contact you and require flood insurance. This fee is required even if your home is on top of the highest hill.
    • Escrows (Impounds) - Reserves Deposited with Lender - A reserve account that may be required by the lender. Taxes, insurance, and PMI (if applicable) are part of the monthly payment. The reserves are accrued in an escrow account that is set up by the lender and paid on the borrowers behalf when due. The amount taken varies dramatically depending on what month you close.