You should always be “in the know” when it comes to a financial transaction as significant as a mortgage.
At Homeowners Financial Group, we’re all about creating confident, secure, and excited borrowers by providing the education and understanding necessary to navigate the purchase or refinancing process with absolute certainty.
With that in mind, we present this comprehensive guide to the costs associated with a home loan.
We know costs are never any borrower’s favorite topic to discuss, and this is a long list. Keep in mind that not all of these costs will apply to every home financing situation.
Also, when you apply for a mortgage, we’ll send you a written Loan Estimate within three business days. It will provide estimated closing costs for your specific scenario, including pre-paid expenses.
If those estimates change significantly over the course of processing your loan, we’ll send you a revised Loan Estimate. Then, at least three business days before your closing, we’ll send a Closing Disclosure, which will include the final amounts.
As always, your Homeowners Licensed Mortgage Professional is available to answer your questions about costs and anything else related to home financing.
These are the customary closing costs for most mortgage transactions.
- Loan Origination Charge or Points. Cost to obtain the stated interest rate. The more points paid, the lower the interest rate will typically be.
- Application Fee. A fee paid to begin the process of getting a mortgage loan. An application initiates the lender’s processes, including triggering required disclosures.
- Processing Fee. Subsidizes the lender’s cost of managing an application, including obtaining and verifying documentation for income, assets, credit and more.
- Underwriting Fee. Subsidizes the lender’s cost for an underwriter’s review of a completed loan application file, including documentation, verifications, appraisal, title work and more.
The lender selects providers and determines the following costs. You cannot shop for these.
- Appraisal Fee. Pays for a valuation analysis of the property being financed. Typically collected by the lender and passed to the appraiser.
- Credit Report Fee. Pays for access to your credit report. Collected by the lender and passed to the credit reporting agency.
- Flood Determination Fee. The cost of determining if the subject property falls within a flood plain zone. Typically collected by the lender and passed to a vendor.
- Tax Monitoring Fee. Pays for a vendor to regularly report real estate tax amounts to the lender so the escrow account that pays the taxes can be adjusted as needed. Typically collected by the lender and passed to the vendor.
- Tax Research Fee. Pays for a report of subject property taxes due and unpaid by the seller plus any due at the time of closing.
You or your attorney can shop for the following services. You typically pay the resulting fees directly to the provider.
- Pest Inspection. An inspection of the subject property focused on finding termites or other wood boring insect infestations or other pest invasions that could negatively impact the property. Typically provided by either the home inspector or a pest control company.
- The process of identifying and measuring property boundaries and the location of improvements on the subject property, conducted by a licensed surveyor. If a current survey already exists, a title agent or other inspector can assess its accuracy and identify potential encroachments, such as a neighbor’s fence crossing the subject property line.
- Title – Insurance Binder. Evidences the property information and title insurance that will be issued at closing – both the lender’s policy to insure the mortgage amount and the owner’s policy (if purchased) to protect equity.
- Title – Lender’s Title Policy. Protects the lender against any future claim of legal ownership to the property. Required since the lender is typically at risk for the majority of the property cost based on the money they loan against it.
- Title – Settlement Agent. A title agent will often attend or, in some cases, conduct the closing. In some areas, an attorney for the lender will conduct the closing and collect a fee.
- Title – Title Search. Research into the chain of title on the subject property, required before the title is insured.
Other Costs
- Taxes and Government Fees. Many variations of taxes and/or fees apply with a real estate purchase. Tax stamps, transfer tax and mortgage tax are examples. Most are based on the sales price and/or the mortgage amount.
- Recording Fees. A deed and other documents must be recorded into public record to evidence transfer to new ownership.
- Owner’s Title Insurance. Protects you against loss of your equity interest in the property in the event of a claim against your legal ownership of the property.
Prepaid Expenses
- Homeowners Insurance. Insures the property against damage or theft. Typically, new homeowners pay for the first full year of insurance, directly to the insurer or agent prior to closing.
- Mortgage Insurance (MI) or Private Mortgage Insurance (PMI). Insures the lender in case of default. Required due to the riskier nature of loans with small down payments. PMI is applied to conventional loans with less than a 20% down payment, and MI is applied to all FHA loans. MI and PMI are typically collected monthly with each regular payment and may be prorated for the first month at the time of closing.
- Prepaid or “Per Diem” Interest. Covers the daily cost of interest on your mortgage from the day of closing through the end of the current month. It prevents the need to make a partial payment and allows the mortgage due date to fall on the first of the month.
- Property Taxes. Any property taxes due are collected for payment to the local government where the subject property is located. You may also need to reimburse the seller for pre-paid taxes that cover the time you’ll now own the property.
- School Taxes. Any school taxes due are collected for payment to fund the operation of local public schools in the district where your property is located. You may also need to reimburse the seller for pre-paid taxes that cover the time you’ll now own the property.
- Homeowners Association (HOA) Fee. If an HOA exists to manage common areas and covenants for the property, you’ll pay fees to cover the remainder of the payment term, which may be a month, quarter, or year. You may also need to reimburse the seller for pre-paid fees that cover the time you’ll now own the property.
Miscellaneous Fees
- Attorney Fees. If you hire your own attorney, you will owe a fee. This is separate from the fee paid if an attorney is used as the Settlement Agent.
- Adjustments to the Seller. You may need to reimburse municipal fees, HOA fees, taxes or utility costs that have been pre-paid by the seller.
- Broker Fees. Unless you made other arrangements, real estate agent and broker fees are typically paid by the seller, even if you used a “buyer’s agent.”
- Miscellaneous Fees. Many varied (and usually small) fees are customary in certain areas. Review your Loan Estimate for specifics related to your transaction.
