Home Mortgage Loan Closing Costs

You've worked and scrimped to save up enough money for a down payment on a house, and you're finally ready to become a homeowner. You've even found "the" house, and it looks like you can just afford the monthly payments and still be able to eat.

What are closing costs?

Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction. Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.

What fees can you expect at closing?

Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose. Here is a list of fees that may be included in closing. The list is inclusive of fees you may see, but it’s not likely that your loan will include all of the fees listed here.

Application Fee:

This fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well. Not all lenders charge an application fee, and it can often be negotiated.

Appraisal:

This is paid to the appraisal company to confirm the fair market value of the home.

Attorney Fee:

This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.

Closing Fee or Escrow Fee:

This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.

Courier Fee:

This covers the cost of transporting documents to complete the loan transaction as quickly as possible.

Credit Report:

A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.

Escrow Deposit for Property Taxes & Mortgage Insurance:

Often you are asked to put down two months of property tax and mortgage insurance payments at closing.

FHA Up-Front Mortgage Insurance Premium (UPMIP):

If you have an FHA loan, you’ll be required to pay the UPMIP of 1.75% of the base loan amount. You are also able to roll this into the cost of the loan if you prefer.

Flood Determinationor Life of Loan Coverage:

This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance, of course, is paid separately.

Home Inspection:

You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.

Home Owners Association Transfer Fees:

The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.

The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern. Also included will be Association by-laws, rules and regulations and CC & Rs.

Homeowners’ Insurance:

This covers possible damages to your home. Your first year’s insurance is often paid at closing.

Lender’s Policy Title Insurance:

This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.

Lead-Based Paint Inspection:

Covers the cost of evaluating lead-based paint risk.

Loan Discount Points:

“Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.

Owner’s Policy Title Insurance:

This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional.

Origination Fee:

This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.

Pest Inspection:

This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans. Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.

Prepaid Interest:

Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.

Private Mortgage Insurance (PMI):

If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.

Property Tax:

Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.

Recording Fees:

A fee charged by your local recording office, usually city or county, for the recording of public land records.

Survey Fee:

This fee goes to a survey company to verify all property lines and things like shared fences on the property. This is not required in all states.

Title Company Title Search or Exam Fee:

This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.

Transfer Taxes:

This is the tax paid when the title passes from seller to buyer.

Underwriting Fee:

This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.

VA Funding Fee:

If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment. Here is a breakdown of the cost of the VA funding fee and a complete list of allowed fees for VA loans.

Property taxes placed in an escrow account are one of the largest expenses at closing. The amount depends on the value of the house you buy and the tax rate in the town or county where the house is located. Many lenders require you to include a monthly estimate with your mortgage payments equal to 1/12th of your annual property taxes and homeowners insurance. For most people, this is easier than coming up with a large lump sum each year when taxes are due.

Don't be taken advantage of at closing, and don't go to closing unprepared. Educate yourself about the ins and outs of home buying before you start looking for your first home.

Mortgage Documentation Requirements

When you are planning for a mortgage application, one of the most important steps you can take before you apply is to gather the documentation you may need to supply with your application. Which loan you select will determine the exact documentation requirements. As soon as we have all your documentation from you the loan will close fast and you will have what you deserve.

Documentation Process After you submit your application, we'll call you to talk about the type of loan you have chosen. Then you will be sent a Disclosure package that includes several items that you will need to sign, and a list of documents that you will need to send in. Here is a list of some of the documents you may need:

Salaried Income

-Most recent pay stub showing year-to-date income; if there have been multiple employers in the current year, all paystubs showing year-to-date income

-Last year's W-2

Salary Plus Bonus/Overtime

-Most recent pay stub showing year-to-date income

-Last year's W-2

Straight Commission Income

- Most recent pay stub showing year-to-date income

-Last two years' 1040 tax returns

Self Employed Persons (1099 recipient)

-Last two years' personal tax return and partnership or corporate tax return

-Current year-to-date P&L if tax returns are older than 12 months

-Signed IRS Tax Form 4506

Partnership Income

-Last two years' personal tax returns

-Last two years' K-1s, 1065s, P&Ls, and YTD Balance Sheets

Corporation Income (if ownership is 25% or more)

-Last two years' personal and business tax returns (1120)

-Current year-to-date P&L if tax returns are older than 12 months

Trust Income

-Trust Agreement or trustee's letter stating payment amount, frequency and duration (must continue for at least three years

-Last two years' tax returns

Rental/Lease Income

-Copy of Rental/Lease Agreements

-Last year's tax return

Social Security/Pension/Retirement/Disability (three years remaining required)

-Award Letter

-Most recent two months' bank statements (if direct deposit) or copies of checks

Interest/Dividends

-Last two years' tax returns

Copies of current statements

Alimony/Child Support

-Complete Divorce Decree

-Proof of six months' receipt (must be recieved continuously for three years to qualify as income)

Purchase Transactions

-Copy of signed Purchase Contract (include all counter offers)

-Gift Letter, if gift funds are being used: Letter includes date of gift, the amount and donor's name, address, telephone number and relationship, statement that repayment is not expected

-Document(s) verifying transfer of funds and copy of a withdrawal receipt from the donor's account or a copy of the gift check

-Certified copy of HUD-1 settlement statement from sale of present property, if applicable

-Evidence of homeowner's insurance (required prior to closing)

-Evidence of flood insurance

Credit History/Liabilities

-Bankruptcy petition and discharge papers, if applicable

-Written explanations of any serious derogatory credit if applicable:

-Bankruptcy

-Collections, judgements, liens

-Late payments - mortgage or revolving credit

-Defaults, foreclosures, short sales

-Final divorce decree, if applicable

Assets

-Most recent two months' bank statements

-Most recent brokerage account statement

-Most recent IRA/401K statement

-Gift Letter, if gift funds are being used: Letter includes date of gift, the amount and donor's name, address, telephone number and relationship, statement that repayment is not expected Document(s) verifying transfer of funds and copy of a withdrawal receipt from the donor's account or a copy of the gift check Certified copy of HUD-1 settlement statement from sale of present property, if applicable

Refinance Transactions

-Evidence of homeowner's insurance

-Evidence of flood insurance

Condominiums or Planned Unit Developments

-Project name, homeowner's association (HOA) name, HOA contact name and phone number.

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