Category: For Professionals

Closing costs can play an important role in deciding on a lender to work with.  Many consumers elect to “shop around” to be sure that they are obtain mortgage services with competitive terms.  I encourage consumers to educate themselves on their options and take pride in going over the costs of a mortgage/ home purchase during my initial consultation with my clients.  Equally important to evaluating the costs various lenders are offering I believe it’s critical that consumers feel confident that the lenders they are shopping are fully disclosing the costs and various options available to them.

Quick note: If a lender does not voluntarily or refuses to provide to you a summary of their charges then you should be VERY skeptical of the services they are offering.

In a face-to-face consultation I typically always go over ALL the costs associated with buying a home and taking our a mortgage.  I have put together this summary for instances where I’m unable to meet face-to-face or for a client to visit and refresh their memories.

Costs associated with the origination of a new mortgage (please note that all these fees may not apply to your situation)
It’s important to understand that a closing cost summary is  a snapshot of the entire transaction and includes expected settlement charges not only from the lender but also all the other 3rd party servicers involved with your purchase ore refinance.  These servicers  include the appraiser, lender, escrow/ title company, county recorder’s office, etc.

It may also include pro-rated payments such as collections for your impound account so that you can have your real estate taxes and homeowner’s insurance collected with your monthly mortgage payment and/ or payment of property taxes that need to be reimbursed to the seller for time in which you will own the home.

In order for you to make the best possible decisions with regard to your loan it’s important to understand what all these charges mean and how they affect your loan. Here is a summary of the fees you can expect to incur:

Loan Origination Fee, Loan Discount, Mortgage Broker Fee: Points are disclosed in this section. A point is equal to 1% of the loan amount and is a fee that can be charged at closing in exchange for a lower interest rate over the life of the loan. The status quo in the mortgage industry is to charge a 1% origination fee although lenders should also offer 0% point options.   There is an inverse relationship between the points you pay and the locked interest rate a lender will be able to provide.

Appraisal fee: The cost of your appraisal is disclosed in this section. A standard appraisal with an interior and exterior inspection runs $450-$550.  Appraisals for newly constructed homes may also include a $75-$100 charge for a 442 final inspection.  Some lenders will require a second review appraisal which can run another $450-$550.  A consumer usually won’t know if they can expect to pay for a second appraisal until an underwriter has review the first report.

Credit report: A credit report costs between $20-$30 depending on the agency that it is pulled from.  Depending on the length of your escrow we may need to pull multiple reports which could increase the cost on this line.  Furthermore, if there are corrections that need to be made and supplemental work is required on your credit report then these charges can be much higher.

Processing fee: We have an in-house processing department. This means that documentation taken from you as the borrower, appraiser, credit reporting agency, title company, insurance agent, and realtors are packaged up and organized on-site. Our processing department then works in direct contact with our lender to make sure that your final approval and loan documents are ready for your closing in a timely manner. The processing fee is paid to compensate for their behind the scenes work.

Underwriting fee/ Wholesale Administration fee: All lenders have an underwriting department that is in charge of analyzing the loan and approving or denying it. Lenders will charge anywhere from $595-$1,100 to underwrite a loan package depending on the type and size of the loan.

Tax Related Service Fee: All lenders are required to order a tax service for each specific loan they originate. The tax service is responsible for checking in annually to make sure that a borrower is paying their taxes (i.e. federal, state, municipal, etc.). The reason this is important for a lender is because government agencies have the ability to place liens on a property ahead of their mortgage liens. The tax service fee is usually $75-$100 depending on the lender and can often be included in the Underwriting/ Wholesale Administration fee.

Wire Transfer Fee: Banking laws require that amounts of money greater than $10,000 be wired through the Federal Reserve Bank so that they can monitor the transfer and flow of money in the United States. Lenders incur fees every time they wire funds to the escrow company in order to fund your loan. Wire transfer fees range between $50-$150 and can also be included as a part of the Underwriting Fee/ Wholesale Administration Fee.

Document Preparation Fee: If you’ve ever signed loan documents before you know how many need to be signed. Many lenders charge a fee for drawing the set of loan documents which are then sent to escrow for your signatures. These fees can range between $50-$225 can also be included in the Underwriting Fee/ Wholesale Administration Fee.

Flood Certification Report: Lending laws require that lenders pull a flood report for every property they are lending against. These reports tell the lender whether or not the property is located in a flood zone and whether or not the borrower will need to purchase flood insurance in conjunction with their homeowner’s insurance. A flood certification report usually runs between $15-$30 and can also be included in with the Underwriting Fee/ Wholesale Administration Fee.

Title/ Escrow Charges
This section of the summary discloses the expected settlement charges that the title/ escrow company will charge. Please note: In evaluating a loans for a home purchase, these fees may vary widely from lender to lender but at the end of the day these fees will be the same no matter what your GFE says and what lender you go with.

Closing or Escrow Fee: This fee is paid to the escrow company and is their compensation for acting as the 3rd party facilitator for the transaction. In a nutshell, for a purchase they take the funds from the buyer (down payment + loan proceeds) and exchange it for a deed to the property from the seller. For a refinance they take the loan proceeds from a new loan and pay-off all the existing debts that need to be paid off. Escrow fees are dependent on the size of the transaction but usually range between $250-$800.

Document Preparation Fee/ E-Doc Fee: Some escrow companies charge a fee for the process of working up a set of escrow documents which legally give them permission to act as the 3rd party facilitator. This fee is usually around $100.

Title Insurance: Title insurance protects you and the lender in case the title to the subject property does not accurately represent the correct and indisputable ownership of the property. Essentially it insures against losses incurred because of defects to the title of the property. Title insurance premiums are paid to the title insurance company and depend on the size of the loan and whether or not it
is a refinance or a purchase.

Endorsements to Title Insurance: Like any kind of insurance policy (i.e. title, auto, home) insurance companies write very general policies that apply to the most amounts of people so they can create economies of scale. Everybody’s situation is different which means you will likely also have to purchase endorsements to your title insurance policy. Title insurance is no different. These endorsements will be specific to your loan, property, and location. Endorsements usually will cost an additional $50-$250.

Courier: On the day that your loan funds the escrow company will have to get the new deed down to the county recorder to record the document. They almost always hire a courier to do this which will cost between $50-$125.

Re-conveyance Fees: Re-conveyance fees only apply to refinance transactions. These are fees that are charged to release the previous lender’s interest in the property and convey the new lender as the lien holder. Re-conveyance fees usually run $120 per existing loan.

Early-Issue Title Insurance (EITI): Early-Issue Title Insurance is an additional title insurance premium required by lenders for borrowers who are taking out a new loan secured by a newly constructed home. It is an insurance policy that protects you and the lender from any mechanics liens filed against the property after you close. The cost of the insurance is usually $2.00-$2.50 per $1,000 in the loan amount. If you are using Continental Home Mortgage in conjunction with buying a JLS Custom Home often time we can have this cost waived.

Government Recording & Transfer Charges
The 1200 section of the GFE are charges collected by the government to cover recording charges and any taxes that need to be collected in connection with the transfer of real estate. Please note: As it was with the Title/ Escrow charges, at the end of the day no matter what lender you end up working with these charges will end up being the same even if they aren’t disclosed on the GFE.

Recording Fees: Each county recorder charges a slightly different amount to record the deed. The charges are based on a per page basis. Typically the cost to record the Deed is $110-$175.

City/ County Tax/ Stamps: Some counties collect a tax for any real estate sale that occurs inside the borders of the county. Most notably, Washington County, OR charges .10% of the purchase price to be split evenly between the buyer and seller.

Additional Settlement Charges
In unique circumstances there may be other charges that arise. For example,
sometimes Condominium Associations will charge set-up or pro-rated assessments to borrowers at closing. These fees may be itemized in this
section.

Items Required By Lender to Be Paid in Advance
Charges in this section may vary depending entirely on the time of month you close and the amount of your homeowner’s insurance premium. Please note: Charges disclosed in this section are NOT dependent on the lender you choose to work with.

Per Diem Interest: This charge is representative of the interest that the lender will collect at closing to pay for the interest on the loan from the date of funding to the end of the month. For example, if the loan closes on the 16th of the month then the lender will collect 15 days worth of interest at closing to pay for the rest of that month. Lenders have to collect interest at closing because mortgages are paid in arrears which means when you make a mortgage payment you are actually paying the interest for the previous 30 days. This differs from rents which is typically paid in advance (a tenant pays on the 1st of the month to live in the property for the next 30 days).

Hazard Insurance Premium: Hazard insurance and homeowner’s insurance are one in the same when it comes to your mortgage disclosures. You are obligated to select your homeowner’s insurance coverage and premium. Ultimately the premium you agree to is what will be paid at closing. However, at the disclosure stages your mortgage professional will estimate this amount on your behalf.

Reserves Deposited With Lender
This is only applicable if you intend on having real estate taxes and homeowner’s insurance included with your monthly mortgage payment. If you elect to pay these items separately then there will not be any amounts listed in this section.

If you choose to have your real estate taxes and homeowner’s insurance impounded then the collections in this section will depend entirely on the amount of property taxes for the subject property, the timing of your scheduled close date, and the amount of your homeowner’s insurance. Your mortgage professional should be able to explain why the lender is collecting what they are collecting.

Comparing two GFE’s from two separate lenders can often be a confusing and overwhelming task. It can be very difficult to differentiate between costs and fees that are connected to the lender and costs which are independent of the lender.

Here are some common tips in evaluating a GFE that will help you best understand what you’re evaluating.

* The 800 section is the only section that should vary between lender- It states very clearly on the GFE that the charges itemized in the 800 section are “ITEMS PAYABLE IN CONNECTION WITH THE LOAN.” It stands to reason then when comparing two lenders with two different loan offerings that this is the section which can vary between them. The rest of the sections in a GFE (1100, 1200, 1300, 900, & 1000) disclose charges form 3rd party-service providers or pre-paid interest, taxes, & insurance which are all independent of your lender. Although there may be discrepancies between two competing GFE’s in the non-800 sections these should not be taken into account because in the end these charges should end up being the same (some minor exceptions may apply).

*Differences in title and escrow fees do not necessarily represent a cheaper option- Many times clients will share GFE’s with us from another lender which at first glance appear to offer lower settlement charges. But, after carefully reviewing how the charges are broken out they find that it is not the case after all.

For example, let’s evaluate a situation where an applicant is comparing 2 GFE’s for a $250,000 loan they are taking out to buy a $350,000 home. Here is a summary of 2 GFE’s from two different lenders:

Lender 1-Total Estimated Settlement Charges – $7,103
Lender 2- Total Estimated Settlement Charges- $5,242

After closer evaluation the applicant realizes that despite the higher figure for Total Settlement Charges that lender is actually offering a lower closing cost option. Here is how the GFE’s broke down by section:

Sec. 800 charges (loan closing costs)
Lender 1= $1,608
Lender 2= $3,958

Sec. 900 (Prepaid Interest & Insurance)
Lender 1= $1,728 (cumulative= $3,336)
Lender 2= $467 (cumulative= $4,425)

Sec. 1000 (Prepaid Insurance & Taxes for reserves)
Lender 1= $2,650 (cumulative= $5,986)
Lender 2= $0 (cumulative= $4,425)

Sec. 1100 (Title & Escrow closing costs)
Lender 1= $975 (cumulative= $6,961)
Lender 2= $675 (cumulative= $5,100)

Sec. 1200 (County recording)
Lender 1= $142 (cumulative= $7,103)
Lender 2= $142 (cumulative= $5,242)

In taking a closer look at the GFE the applicant realizes that lender 2 is actually charging $2,350 more in lender fees than is lender 1. However, by “low-balling” the expected closing costs for title & escrow charges & by showing a loan with no impounds (versus Lender 1 who included prepaid taxes and insurance) Lender 2 was able to make their loan look cheaper. In fact, in this example it is not the case.

*Closing costs are not the only story- Just because a lender has presented to you a GFE with the lowest closing costs doesn’t make it the best option for you. Keep in mind that a GFE may not accurately disclose all the important terms of a mortgage. Therefore, in determining what loan option is best the applicant should also consider the type of loan, payment, prepayment penalty, and reliability of the lender.

Generally speaking there is an inverse relationship between closing costs and interest rate. Therefore, if an application intends on being in a home for the long-term it may make sense to incur more costs at closing by paying additional points in exchange for a lower interest rate.

*Trust your intuition- Although the GFE is meant to help consumer’s easily compare loan options from different lenders we often find that the average consumer has difficulty clearly comparing multiple GFE’s. Ultimately, it is usually a good decision to work with a lender that your intuition says you can trust. Give each lender an opportunity to walk you through their GFE and explain each of the charges. If a lender is not willing to give you a GFE or is not willing to take the time to explain it to you then often times this lender is not going to perform as promised.