Lifestyles Realty

Closing Costs

Closing costs  fall into four types: 
1) Non-recurring closing costs 

  • Lenders Title Insurance - whether you are purchasing or refinancing your existing loan the lender will require a policy  of title insurance. This gives them a guarantee (by the title insurance company) as to what liens are associated with the  property the day the loan funds. If they miss something, it's their problem. 
  • Escrow (or attorney's) fee - an escrow company performs, essentially, two functions: Neutral agent who manages the paper work involved in your transaction and the escrow funds. They collect all monies and disperse funds to all parties.  They intereact with your mortgage company in the obtaining and signing of your loan documents. 
  • Appraisal Fee - this goes to the appraiser. Often it is paid at the time of inspection. Otherwise it is collected at escrow. 
  • Appraisal Review Fee - If the appraiser is not on the list of approved appraisers for the lender or if  the value seems questionable 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. This varies from a low of $300 to as high as $850. 
  • 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. The credit reports used in the mortgage industry are called RMCR's and cost about $50. 
  • 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 of the loan documents and the Country Recorder is going to charge the escrow company for recording them. 
    Other - Allow another $150 estimate for fees such as courier fees, Overnight Delivery and wire transfer of the loan funds. 

2) 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". I suggest that you calculate the 
"recovery time" for the extra expense and decide if it is worth it. Generally it would depend on how long you plan to stay in the home.

3) Recurring closing costs 
These are costs that you would be responsible for but will pay early because of the timing of your 
loan. This is one area that you must pay attention to when refinancing because it can vary greatly depending on the time of the month that your loan closes. Recurring closing costs consist of: 
a ) 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. If possible, do not fund loans on Friday's to avoid paying at least 4 days "overlapping interest". 
An exception to this is VA  FHA loans. Here, one must pay interest for the entire month in which 
the loan funds. 
b) Property Taxes - this is a matter of timing. In California one's property taxes are due in 2 installments. The 1st is delinquent on December 10. If you are refinancing in October and the first payment date on your loan is not until December than you can be delinquent on your taxes before  your first payment is due. Bottom line is this: if you have not made your 1st installment and the 1st payment date is in December or later that you must pay your first installment at escrow. If it is getting close to that date, your loan officer and the escrow company must coordinate to make sure that the payment is made and made only once. The escrow officer must be able to verify that the  tax collector has received and posted the payment. 
c) 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. 
If your property is a condo and insurance is paid thru the homeowners association then this is not relevant. 
d) 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 account of your old lender. 
Apart from this detail, impounds consist of a certain number of months of PMI, taxes and insurance. 
4) Fees associated with purchase transactions 
These include: a) an owners title insurance policy. 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. 
b) inspections - termite, roof, septic (for rural property), surveys,etc. 
c) Transfer Fees - these are charged by the county and municipalities, vary greatly and are most often paid by the seller. 
d) 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." 

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