Mortgage Closing Cost

home loan payment

In addition to the basic mortgage underwriting, processing and origination fees that are charged by a lender, there are several other costs associated with purchasing a new property.

Since every player on your real estate home buying team has a stake in your transaction, it’s a good idea to know how to budget for their services.

Common Out Of Pocket Expenses to Budget For:

The items below are common to a Real Estate transaction and you may be required to pay for them up-front:

*In most Cases the estimated fees for each item have been purposely left out since each scenario is different.

Home Inspection-

This is usually money well spent since the inspector will evaluate many aspects of your new home to ensure all systems are functioning as they are intended to. Cost can very depending on the size of the home. 

Condominium Questionnaire-

The questionnaire may be required by the lender to obtain details on the entire building. A lender must make sure the building is financially safe for lending. Depending on your down payment this may or may not be required at all. The questionnaire is sent directly to the Building’s Association to be completed. This process can take up to 5 – 15 days depending on the Association. Most Association charge a fee to complete the questionnaire and can range anywhere from $0 to $300 depending on the complex.

Well and Septic Certifications-

If your new home has either of these systems you will want to be sure that they are functioning properly and may be required by the lender.

Survey-

This document outlines the borders (easements) of your property, and the price can vary depending on the size of the lot and if it was actually staked out.  A survey is not a requirement for condominium units. 

Depending on your state, loan size, property type, loan program and lender, the appraisal may be required to be paid for up-front by the borrower.  And, in some cases, more than one appraisal may be required, especially if the borrower is switching banks and using conventional financing.

 

A typical purchase transaction will involve some, but not necessarily all of these services.  It’s important to discuss any other potential out of pocket expenses with your agent and loan officer, since some of these items may not be included on the initial Good Faith Estimate.

The important thing to realize is that the vendors providing these services will expect to get paid whether or not your transaction closes, and they may ask that you pay when services are rendered.

A combination of just a few of these fees could easily add up to over $1,000 so it is important to have the funds set aside at the start of the process.

Closing Cost Terms, Descriptions, and Association:

 

Lenders Fees are associated but not limited to: Loan Origination, Loan Discount*, Credit Report, Tax Service, Flood Certification, Processing, Underwriting, Document Preparation, Broker Fee

Third Party Fees are associated but not limited to: Appraisal, Closing or Escrow Settlement (Title), Owner’s & Lender’s* Title Insurance (Title), Endorsement (Title), Survey, Condo Questionnaire (Association or Management Company), Home Inspection, Recording, City/ County Tax Stamps (Deed)*, State Tax Stamps (Mortgage), Intangible Tax Stamps (Mortgage), 

  • City/ County Tax Stamps (Deed)* – It customary for the seller to pay the Deed Stamps at closing.
  • Lender’s Title Insurance* – In some counties (Palm Beach) it is customary for the seller to pay for the Lender’s Title Insurance.

Goverment Loans:  Up Front Mortgage Insurance Premium (FHA),  VA Funding Fee

Prepaid Items are associated but not limited to: Daily Interest, Homeowner’s (Hazard) Insurance Premium (first year), Flood Insurance Premium (first year), Homeowner’s (Hazard) Insurance Reserves, Flood Insurance Reserves, Property Tax Reserves

Purchase Closing and Escrows: At closing the lender will collect property taxes from January 1 through the day of closing, plus four month of reserves from the buyer. At the same time the Title Company will collect property taxes from January 1 through the day of closing from the seller and credit this amount to the buyer. Meaning the buyer is only responsible to bring 4 months of property taxes for reserves at closing. The lender will also collect two month of insurance payments for reserves at closing. In addition to the escrow reserves collected for the insurance you will also need to pay for the first year on your insurance policy. Buyers may elect to pay for the first year of insurance prior to closing directly to the Insurance Agent or have the Title Company collect payment at closing. 

Refinance Closing and Escrows: Since you are going to have a new loan the lender must collect the correct amount of funds to place in your escrow account for both your property taxes and insurance at time of closing. This is to ensure the lender has enough funds in your escrow account to pay the bill when it is due. In Florida the property taxes are due in November and depending which month your insurance policy is renewed will determine the amount of months needed for your insurance escrows “Click Here” to see Escrow Closing Chart. Keep in mind, if you are currently escrowing on your current mortgage you will receive all your escrow funds back in the mail once your current loan is paid off (usually about 3-4 weeks after you close). Plus you will have one, possibly two months with out any mortgage payments at all. The end result is that no additional out of pocket expenses accrue concerning escrows. I understand this may sound confusing. Please contact me for further explanation.

Escrows for property taxes and insurance are optional if you have a minimum of 20% equity in your home. 

Frequently Asked Questions:

Q:  Where Does My Earnest Money Go?

An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.

For example, there may be a contingency period for appraisal, property inspection, or approval of HOA documents.

In most cases, the Earnest Money held by the escrow company is credited towards the home buyer’s down payment and/or closing cost.

*It’s important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.

Q:  Do I Have To Pay My Real Estate Agent On A Purchase Transaction?

In most cases, the buyer is not responsible for covering the costs of their real estate agent.

When a home owner hires a real estate agent to list, market and sell their property, they’re also agreeing to compensate the agent representing a buyer.

A common myth is that a buyer will get a better price on a property if the seller doesn’t have to pay the typical 3% to a buyer’s agent.

However, it’s more expensive to buy an overpriced property, not negotiating properly for the acceptable seller paid closing costs, overlooking important language in the purchase contract, missing potential commercial zoning updates on a nearby lot, or buying a home that has a lawsuit against the HOA.

Q:  What Are Mortgage Points?

Mortgage points are fees charged by the lender for services and/or a lower interest rate. One Mortgage point is equal to one percent of the loan amount. For example, on a $100,000 mortgage $1,000 would be equal to one point.

Understanding what points are and how they work can save you thousands of dollars on your mortgage.

Borrowers can pay mortgage points to reduce the interest rate charged on their mortgage.

The Borrower may also choose to raise the interest rate to reduce the closing costs. This buy-up strategy is used when the intentions of the borrower is to keep the mortgage for a short period of time.

Make sure you consider mortgage points in your strategy when getting a loan. It can save you thousands of dollars.

“Click Here” for more information on mortgage points.

Q: Are Mortgage Points Worth it: 

“Click Here” to find out.

Q:  Are Discount Points Tax Deductible?

Yes, they may be tax deductible, but make sure to speak with your tax advisor.

Q:  Can I Pay More Than One Point For A Lower Rate?

Mortgage points usually are calculated in 1/8 increments. A good rule of thumb to follow on a 30 year fixed rate is for every .25% drop in interest rate it will cost you one mortgage point.

Q:  Is a “No Origination Loan” or “No Cost Loan” a Form Of Buying Up A Rate?

Yes, this strategy is usually used when the borrower is planning to keep the mortgage for a shorter period of time.

 

Be Smart … Ask Questions … Get Answers!

For more information, call (954) 599-3432 or “Click Here” to send me a message by e-mail

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