Closing Costs Defined
So what do all these closing costs mean? We have done our best to spell out what all costs mean and more importantly - if they may be negotiable.
Please Note: The closing costs shown on the GFE 2010 are not spelled out in the same format as they are below. You will be able to see all fees below (and their line items 800-1300) by having your lender provide a separate form for review . Any lender can provide a preliminary HUD 1 closing statement and the line item format used below. Most mortgage brokers use the Calyx origination system and can provide a form called an “initial fees worksheet” . Remember: you need to know how to accurately identify what fees are negotiable with your lender.
NOTE: As of January 1, 2010 some fees must be noted as an “Origination” charge only. This means that some costs may be noted as a different term (name), but are required to be shown on Page 2, Section 1, of the Good Faith Estimate - GFE 2010. We have noted these terms as “ORIGINATION FEE” below with the definition. Origination Fees are negotiable fees.
***Line # - 801: *LOAN ORIGINATION: Limited to a maximum 1% of the loan amount for FHA, VA and USDA loans. It is negotiable as to how much can be charged for a conventional or Jumbo loan. This fee is paid directly to the loan officer and/or lender. NEGOTIABLE FEE, ORIGINATION FEE
802: *LOAN DISCOUNT: One discount point represents 1% of the mortgage amount. It is a cost associated with getting the interest rate on your new loan. Rule of thumb: The lower the interest rate, the higher % the discount points. Thought: “discount” stands for discounting (lowering) your interest rate. NEGOTIABLE FEE
803: APPRAISAL: This fee is required on all new home purchases. For FHA/VA, and USDA loans - the fee is normally set by local governmental offices. ($425.00 as of 10/01/2009) Conventional or Jumbo loans can range from lender to lender. ($325.00 to $450.00 as of 10/01/2009). Not negotiable.
804: CREDIT REPORT: Charged by your lenders particular credit reporting agency. When charged on the GFE as a credit report it is non-negotiable. ($12.50 - $55.00) Some lenders will not charge a credit report directly but lump it in another term - i.e. Administrative fee, document preparation, or application fee. **When charged in this manner, it will not show under line 804. It then becomes a NEGOTIABLE FEE.
805: LENDER’S INSPECTION FEE: Normally charged if the home is still under construction or repairs were required per a home inspection or appraisal. These repairs require a final inspection by the appraiser. This fee can also be on another line and called a re-inspection fee. ($65.00 - $150.00). Not negotiable.
806, 807: MAY OR MAY NOT SHOW FEES PER GFE
(807: ASSUMPTION FEE): May not show on your GFE as an actual line number. Only charged if the loan is being assumed. Not negotiable.
***808: MORTGAGE BROKER FEE: This fee is either a percentage of the loan amount or a flat fee charged directly by the lender or broker. This fee is paid directly to the lender or broker as income. Some lenders and brokers will charge a mortgage broker fee in the place of an origination fee (Line 801). NEGOTIABLE FEE, ORIGINATION FEE
809: TAX SERVICE FEE: The lender pays a third party to monitor and/or handle the payment of your property tax bills. The Tax Service Fee covers the cost of this service. The purpose of the tax service fee is to ensure that the payments are made on time, and to prevent tax liens from occurring. Not negotiable.
***810: PROCESSING FEE: This fee is charged by the lender or broker as a cost of processing your loan. This fee is either paid to a staffed employee or third party to process your mortgage loan. This fee can be combined with other fees and is paid to the lender or broker directly. NEGOTIABLE FEE, ORIGINATION FEE
***811: UNDERWRITING FEE: Charged by the lender to support the specific loan program guidelines and delivery to the borrower. The lender has either a paid staff member or an outside source to “underwrite” (provide evidence) that all information provided on the loan application supports what was stated. Conventional and Jumbo loans fees range ($250.00 - $850.00). Some lenders will lump other fees into one Underwriting fee. These fees may be called a tax service, flood certification, commitment fee, administration fee, processing fee, document preparation fee, wire transfer fee or other. If you are using a mortgage broker, this fee is not normally negotiable. If you are using a lender, the fee is a NEGOTIABLE FEE. ORIGINATION FEE
812: WIRE TRANSFER FEE: Charged by the lender for the transfer of funds to the closing firm. This fee is charged by the investor or Federal Reserve. ($10.00 - $50.00) Not negotiable.
813 - 819: OTHER LENDER FEES: Lenders have other fees that can be charged to secure a loan. These fees are not necessarily associated with a certain line item on the GFE. We have listed other possible lender fees below.
FLOOD CERTIFICATION: This is a standard fee charged by the lender to identify if the property is in a flood zone. If the property is deemed in a flood zone per FEMA flood maps, the borrower may be required to buy flood insurance to protect their investment. ($12.00 - $29.00) Not negotiable
RE-DRAW FEE: This fee is charged if a closing package and funds are sent to a closing - and the closing does not take place on that day. This will require the lender to “re-draw” or re-do the closing package incurring more costs. ($150.00 - $ 250.00) NEGOTIABLE FEE
***APPLICATION FEE: This fee is charged by the lender to try and secure a borrower to their company. If a loan does not close - the lender will use this fee to offset costs that have been incurred during the loan process. The Florida office of financial regulation states that this fee must be refunded to the borrower at closing of a loan. Rule of thumb: Don’t ever pay an application fee. ($100.00 - $450.00) NEGOTIABLE FEE, ORIGINATION FEE
***AMORTIZATION FEE, MODIFICATION FEE, COMMITMENT FEE, LENDER FEE AND NEW LOAN ADMINISTRATION FEES are all fees normally paid directly to the lender. NEGOTIABLE FEES, ORIGINATION FEE
REINSPECTION FEE: This fee is normally paid to the appraiser for having to go back to a property after the original inspection (appraisal) of the property. ($65.00 - $150.00) Not negotiable
APPRAISAL FIELD REVIEW - APPRAISAL DESK REVIEW: This fee is charged by the lender to have an outside party or a staff appraiser evaluate the appraisal provided by the original appraiser. If the staff appraiser must physically visit the property - it is called a “field” review ($150.00 - $425.00). If the staff appraiser must simply review the original appraisal via email and not physically visit the property - it is referred to as a “desk” review ($75.00- $250.00). Not negotiable.
MERS FEE: There are several definitions of this fee charged directly by the lender. It is the fee charged to register a loan for servicing by the lender. A fee charged to the lender to register the loan in automated servicing. ($3.95 - $6.95) Not negotiable.
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**Compensation to Broker from Lender (not paid out of loan proceeds) this is called the Yield Spread Premium. This fee is paid to the mortgage broker or lender by the end lender or investor. This fee is not paid out of pocket directly by the borrower! It is paid to the broker by the lender. It is directly related to the interest rate charged to the borrower. Rule of thumb: the higher your interest rate, the more the yield spread paid to the broker or lender. It is expressed as a percentage only of the loan amount. **Licensed Mortgage Brokers are required to disclose the maximum yield spread premium within 72 hours of loan application via Good Faith Estimate (normally 0-3% of the loan amount). Licensed Mortgage Brokers are required to also redisclose to the borrower the exact yield spread premium when the loan is locked in via Good Faith Estimate, Truth in Lending and Mortgage Brokerage Agreement. This fee is negotiable by having your lender or broker credit you by that amount towards closing costs. NEGOTIABLE FEE, ORIGINATION FEE
900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE - All fees in the 900 and 1000 series of line items will be required by all lenders. These are not fees that the mortgage company earns direct income on. They are not negotiable, but a required outlay to secure the mortgage.
901 - INTEREST - This is the per diem (per day) interest charged by the lender to you based on the amount of days left in the month - after your actual closing date. Ex: Actual close date Oct. 20 - you will have 11 days of interest charged at closing. Not negotiable
902 - MORTGAGE INSURANCE PREMIUM - Depending on the type of loan, your lender may require you to obtain mortgage insurance. This is a premium charged (upfront) by the lender to offset the risk they take via a down payment less than needed to meet loan guidelines. Conventional loans do not normally require upfront mortgage insurance. FHA, VA and USDA loans require either an upfront mortgage insurance premium or funding fee depending on the type of loan. Both terms basically mean the same thing. Not negotiable.
903 - HAZARD INSURANCE -This is your homeowner’s insurance premium. This line is the annual cost of homeowners insurance collected either at closing or upfront by the lender. All lenders require homeowners insurance to be bound before closing can happen. All property insurance premiums are collected a year in advance by the lender. Even if a borrower chooses to not to have the homeowners insurance collected monthly (escrowed) the lender requires a paid annual receipt at closing. Negotiable with your insurance company.
904 - LENDER DEFINED FEE - Depending on the municipality, your lender may require certain taxes to be paid in advance. Not negotiable
905 - VA FUNDING FEE - This is an upfront fee financed on the sales price required by the Veterans Administration (VA). This funding fee is either 2.15% (for a Veteran using their eligibility for the first time) or 3.30% for a Veteran using their eligibility for a subsequent (2 or more) use. This funding fee can be paid in cash, or with a down payment - reduced. Veterans that are over 30% disabled are exempt from the funding fee and paying county property taxes. Not negotiable.
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1000 - RESERVES DEPOSITED WITH LENDER
1001: HAZARD INS. RESERVES - Normally only 2 months of the annual homeowner’s insurance premium -as the lender always wants to have a reserve in place. Most premiums increase year over year. Not negotiable.
1002: MORTGAGE INS. RESERVES - Normally required only on conventional loans if the loan requires monthly mortgage insurance. Not negotiable.
1003: SCHOOL TAXES - Required by some municipalities. Not customary in Florida.
1004: TAXES RESERVES- Required by the lender to have a few months of taxes in reserve if taxes increase year over year (normally 3 months). In Florida, all annual taxes are required to be paid by the lender (or borrower) in November. Not negotiable.
1005: FLOOD INS. RESERVES- If flood insurance is required on your home the lender may require the flood insurance to be included in the mortgage payment. This is not normally the case as the borrower is responsible to pay their flood insurance premiums annually. Not negotiable if in flood zone. May not be required by lender.
1100: TITLE CHARGES- In order to secure a loan the lender has to be assured that there are no liens or possible encumbrances (judgments) recorded on public records. A search of public records will be conducted for the subject property to determine any outstanding liens or judgments currently recorded with the property. All liens must be satisfied at the time of closing to ensure that the lender has clear, first-lien position on the property. This service can be performed by the closing attorney or an independent title examiner.
**1101: CLOSING / ESCROW FEE - Charged by the entity handling the closing. This fee is paid directly to the closing attorney or Title Company. ($150.00 - $750.00) NEGOTIABLE FEE
**1105: DOC PREP FEES - Charged by the entity handling the closing. This fee is paid directly to the closing attorney or Title Company. ($50.00 - $250.00) NEGOTIABLE FEE
**1106: NOTARY FEES - Charged by the entity handling the closing. This fee is paid directly to the closing attorney or Title Company. This fee is used to notarize documents needed to be recorded or made official. This is normally handled by the closing attorney or staff member present at the closing. ($50.00 - $ 150.00) NEGOTIABLE FEE
**1107: ATTORNEY FEES - Charged by the attorney handling the closing. The closing entity may outsource the closing to an attorney who requires a fee. Normally, the attorney is a staff attorney. This fee may not be negotiable with all firms. ($150.00 - $1000.00) NEGOTIABLE FEE
1108: TITLE INSURANCE - Protects against any overlooked liens against the property that were missed at the time of the title examination. It also protects against any future, unforeseen problems, fraudulent activities or disputed claims. Any such problems must be resolved by the title insurance company to ensure that the lender and owner’s retain clear rights to the property. Lenders title coverage is always required. Not negotiable.
**1109: SIMULTANEOUS ISSUE POLICY - this title policy can be purchased at the closing by the borrower. It is the same policy provided to the lender to show no liens and clear title. This policy can be used by a borrower in the future to save money on title insurance via a “re-issue” of the same policy. It is recommended to get a Simultaneous issue policy ($25.00 - $250.00) NEGOTIABLE FEE
1110: TITLE ENDORSEMENTS - these are special provisions added to a title insurance policy to enhance or restrict its coverage. Because not every property is the same, provisions must be made to deliver clear title. Examples of special endorsements include but are but not limited to: Planned unit development endorsement (PUD), Florida form 9, Florida 8.1, and navigational servitude. Not negotiable.
**1111- 1112 - OTHER TITLE CHARGES - there are other fees that the closing entity can charge for a closing. These fees are described below. Other fees include but are not limited to: ELECTRONIC DELIVER FEE, COPY FEE, FAX FEE, COPY OR FAX FEE, and COURIER FEE OR DELIVERY FEES. All fees are paid directly to the closing entity. ($10.00 - $150.00)NEGOTIABLE FEE
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1200: GOVERNMENT RECORDING & TRANSFER CHARGES
1201: RECORDING FEES - Both the Warranty Deed and the Mortgage are recorded with the local municipality. Not negotiable.
1202: CITY/ COUNTY TAX/ STAMPS - Also called Documentary Stamps on the Note. A tax levied by the State of Florida. The charge is normally charged to the borrower (on a purchase transaction) at a rate of .35% of the loan amount. It is also required on a refinance. Not negotiable.
1203: STATE TAX/ STAMPS - Also called Intangible Tax in Florida. This is a tax levied by the State and is paid directly to the State of Florida at a rate of .20% of the loan amount. Not negotiable.
1204: STATE/ DEED/ STAMPS - Also Stamps on the Deed. This is a tax levied by the State of Florida on the sales price of a home. It is required on a sale/purchase of a home. It is charged at a rate of .70% of the sales price. This fee is normally charged to the seller of a home in North Florida and to the borrower on a purchase in South Florida. Not negotiable.
1300: ADDITIONAL SETTLEMENT CHARGES - there are several other charges with names that will certainly catch the eye. Above we have listed normal and customary charges seen on a day to day basis in Florida. Be sure that if other fees are being charged that have not been mentioned on this form, they are most likely a NEGOTIABLE FEE!
Here are some examples of 1300 Series charges:
Independent Consultation Fees, Administration Fee, Loan Assignment Fee, Loan Disbursement Fee, Copy/Phone/Fax Fee, Courier Fee, Verification Fees, Wire Fee, Disbursement/Funding Fee, Homebuyer Education, Escrow Waiver Fee, Miscellaneous Fee in APR, Subordination Fee, MCC Extension Fee, Document Review, Electronic Data Storage, Misc. Fee #1, #2, #3, in APR, Modification Fee, AUS Fee, Closing Coordination Fee, Notary Fee by another party, Tax Certification, Warehouse Fee Best Advice: Ask your lender what the charge is and who it is paid to.
This information is owned by www.JaxBestRate.com . Its use cannot be duplicated in any form without the written consent of www.JaxBestrate.com . TM
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