Who Pays What?
Which party (buyer or seller) are responsible for what closing costs on a mortgage? Let’s start with what type of transaction you are trying to complete. Is it a purchase of a new property, or are you refinancing a property that you own currently own?
Refinance transactions: On a refinance, there are required closing costs on each transaction. This means the lender must charge specific fees to accomplish the transaction regardless. Whether you pay these fees or have your lender pay them is is the real question. Your goal should be: to get the lowes rate and be charged the least amount of fees for your new mortgage or…to reduce your mortgage payment without incurring any additional fees at all. Our recommendation is to ask for those 2 scenarios. The first being what is called a ”No closing cost refinance”. In this scenario all costs are covered by the lender (and not added to your loan amount!). Let me be clear… This is a refinance of your loan with no closing costs - period!!. The only change being made to your mortgage - is the change in your interest rate. Bottom line: the lender is increasing your interest rate to cover your closing costs by using the income paid to them - by the lender. The second scenario is simply asking for the lowest rate and fees for your new mortgage. This is when you are actually either paying the closing costs (out of pocket) or rolling them into the new mortgage amount. This scenario should carry a much lower interest rate but you will be required to either pay (out of pocket) or roll the closing costs into your new mortgage. Bottom line: This scenario should have a much lower interest rate vs. the no closing cost scenario.
Which is best for me? Compare the difference in mortgage payments (scenario 1) vs. the amount either (paid out of pocket) or rolled into the loan amount for closing costs (scenario 2). Example: Scenario 1) No closing cost mortgage - monthly payment = $1600.00 Scenario 2) monthly payment = $1405.00 Closing costs $4400.00. The difference in payments are $195.00 per month. By dividing the closing costs ($4400.00) by the monthly savings ($195.00) you come up with a break even period of 22.5 months to cover the costs of the out of pocket costs. Will you be in your home for 22.5 more months? How much are you saving from your original payment amount? You may just want the lower payment and not want to add any costs. What works best for you?
Purchase transactions: On purchase transactions, you will be required to pay certain fees based on your sales agreement. With that said, you will need to know what “normal and customary costs” are required for your specific area. Yes, believe it or not, mortgage closing costs are paid a little different depending on where you are purchasing in the State of Florida. The following breakdown will show you what costs are normal and customary in the Greater Jacksonville mortgage market.
Negotiating your sales contract. In order to achieve the smoothest possible transaction and negotiate the lowest possible sales price (and costs) you have to know the answer to 2 very important questions. They are: (1) How much money am I comfortably willing to bring to closing (without depleting my whole bank account)? (2) What loan program will you be using for financing the home ? Having the answer to these questions will help in you go into your negotiations with a solid plan for negotiating your best price.
Question (1) How much am I comfortably willing to bring to closing without depleting my whole bank account? You’ve heard the saying… “You can’t get blood from a stone”. You - as a prospective homebuyer must know how much money you have at your disposal to buy a home. Once you are clear on this question, you will be able to continue to Question 2.
Question (2): What loan program will you be using for financing the home? Many loan programs require a minimum down payment. Although some programs have a down payment of Zero ($0) out of pocket, many lenders will require a mimimum down payment. The “most used” programs start at 3% (conforming) or 3.5% (FHA) required down payment of the sales price of your new home. Example: $150,000.00 Sales price (3.5% FHA) = $4500.00. Note: There are loans that require $0 down payment, but certain other limitations(normally income restrictions) must be met in order to qualify.
REAL WORLD: You know how much money you have…do yourself a favor and get a real pre approval (in writing) by a professional mortgage broker or banker before buying a house. They will be able to guide you towards the best mortgage program that makes best use of the funds you have to buy your new home. **NOTE: Our recommendation is to find a local Jacksonville mortgage broker or banker that can accurately pre-approve you for a loan. Online banks are great too, but we recommend being able to look someone in the eye if needed, and more importantly, that knows the local area that you are purchasing/living in.
Who Pays What?
Below, find all costs broken down by line item (per a Good Faith Estimate) and which might be your responsibility on a purchase mortgage and refinance transaction. NOTE: All fees negotiated on a purchase transaction are exactly that - negotiable. Listed below are closing costs to be expected if you need a mortgage from Fernandina Beach to Palm Coast. With being involved in over 3000 purchase transactions in the Florida market over a 15 year period, we feel pretty confident we are steering you in the right direction. With that being said, make sure you are working with a full time Licensed Realtor. They will have a huge hand in negotiating your contract and ensuring you pay your appropriate share of normal and customary closing costs.
B= Borrower cost
S= Seller cost
**As of January 1, 2010 all lender costs disclosed to the borrower per the GFE (revised/updated Good Faith Estimate) are to be labeled as an Origination fee. This consists of all lender and broker fees to equal the total origination fee that the lender may collect directly or indirectly from you. The fees to follow (although noted as different names) are labeled with a (*) to denote which fees your lender should/will disclose as an origination fee on the GFE 2010.
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**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. B= Borrower cost *
**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. B= Borrower cost *
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). B= Borrower cost
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. B= Borrower cost
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). *B= Borrower cost - (S= Seller cost) - Depending on what repairs were needed and thus require being “reinspected” this may be a seller responsibility. This fee is only required 10% of the time and would most likely be the borrower’s responsibility.
(807: ASSUMPTION FEE): May not show on your GFE as an actual line number. Only charged if a loan is being assumed. Not negotiable. B= Borrower cost
**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 *B= Borrower cost *
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. B= Borrower cost - Conventional and Jumbo loans S= Seller cost - Required per VA & FHA *
**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. *B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
**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.*B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
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) *B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
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. *B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - possible required cost per VA. Check with your lender. *
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 B= Borrower cost S= Seller cost - VA *
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) B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
**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) *B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
**AMORTIZATION FEE, MODIFICATION FEE, COMMITMENT FEE, LENDER FEE AND NEW LOAN ADMINISTRATION FEES are all fees normally paid directly to the lender. B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA *
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 B= Borrower cost *
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. B= Borrower cost - this fee is usually noted as a reinspection fee per VA.
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. B= Borrower cost *
**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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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. B= Borrower cost *
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 (31 days in October). B= Borrower cost
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. B= Borrower cost
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. B= Borrower cost
904 - LENDER DEFINED FEE - Depending on the municipality, your lender may require certain taxes to be paid in advance. Not negotiable B= Borrower cost *
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. B= Borrower cost - VA loans only
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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. B= Borrower cost
1002: MORTGAGE INS. RESERVES - Normally required only on conventional loans if the loan requires monthly mortgage insurance. B= Borrower cost
1003: SCHOOL TAXES - Required by some municipalities. Not customary in Florida. B= Borrower cost
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. B= Borrower cost
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. B= Borrower cost
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. B= Borrower cost S= Seller cost - depending on type of fee may be required VA.
**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) B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA
**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) B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA
**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) B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA
**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) B= Borrower cost - FHA, Conventional and Jumbo loans S= Seller cost - Required per VA
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. B= Borrower cost -REFINANCE S= Seller cost - PURCHASE
**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) B= Borrower cost
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. B= Borrower cost
**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) B= Borrower cost -REFINANCE S= Seller cost - PURCHASE
**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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1200: GOVERNMENT RECORDING & TRANSFER CHARGES
1201: RECORDING FEES - Both the Warranty Deed and the Mortgage are recorded with the local municipality B= Borrower cost
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. B= Borrower cost
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. B= Borrower cost
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. S= Seller cost - PURCHASE - NOT REQUIRED ON A REFINANCE
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. B= Borrower cost S= Seller cost - depending on type of fee may be required VA.
REAL WORLD: The seller of a home can pay all costs for the buyer (up to a certain percentage) based on the loan program the buyer is using to buy a home.
FHA LOANS: Seller can pay up to 6% of the sales price in buyers closing costs and pre-paids (escrows 1000 series on Good Faith).
VA LOANS: Seller can pay up to 4% of the sales price in buyers closing costs and pre-paids.
USDA LOANS: Seller can pay up to 6% of the sales price in buyers closing costs and pre-paids.
CONVENTIONAL LOANS: Depending on the down payment: 5% down - Seller can pay up to 3% of the sales price in buyers closing costs and pre-paids. 10% down and up: Seller can pay up to 6% of the sales price in buyers closing costs and pre-paids.
REAL WORLD: If you are trying to negotiate that the seller pay all of your closing costs and pre-paids, be prepared to pay a higher price for the home. Reason: the seller has a number in mind that they are willing to pay out. On the other hand, if you are not asking the seller to pay any of your costs, get the lowest price possible for the home!
**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
