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Mortgage Fees Explained!
One of the most common questions I hear when buying a home is “What are your closing costs for a mortgage?”
This is a very good question and as a consumer I would want to know this as well. This would be a significant part of what helped me make my decision. I have made a list of all the costs and fees associated with getting a mortgage. This list should help you understand the “Good Faith Estimate” that you receive from us listing the fees.
Recurring Closing Costs –
These are costs that “recur” every year – Recurring costs should actually be named Homeowner expenses paid in advance. These are also commonly called Pre-Paid Items. These items include the following:
Hazard Insurance (Homeowners Insurance)– one year in advance + 3 months reserves (reserves needed if impounding which is a requirement on all loans that exceed 80% LTV)
Property Taxes - Pro-rated taxes based on purchase date + specified number of months to be impounded determined based on the month that you close. EX. July = 7 months taxes in advance
Pro-rated Interest – This is your first month’s mortgage in advance. It will be pro-rated from the date of close to the end of that month. Your first payment will be the following month on the first. EX. July 15th close date would require 16 days pro-rated per diem interest calculated on your interest rate. You would then have a first payment date of September 1st.
Mortgage Insurance – Although this is not as common, some lenders will ask for 1 month mortgage insurance in advance.
Miscellaneous – If there is a Homeowners association you may be required to pay a month or two upfront as well.
Non-Recurring Closing Costs –
These are the expenses that we are trying to get the seller to pay. These are the one time fees that you have been putting money in the piggy bank for. You will not have to pay these fees ever again unless you buy another home or refinance your existing mortgage. These include but may not be limited to the following:
Origination – This is what the broker or the loan originator charge you to do your loan. Generally 1% on all FHA deals. This does not have to be a fee that you pay but your interest rate will be higher if you choose not to pay it.
Discount Points- Discount Points are paid to the investor to obtain a lower rate. Basically you are pre-paying your interest. If you are willing to pay more money up front to the investor then they are willing to discount the note rate. This process lowers your monthly payment but increases the upfront costs of the loan. Discount will be made payable to the wholesaler that you are obtaining the loan through. Talk to your Lender, but most of the time it’s a good idea to pay discount points when purchasing a home. It can be a good idea sometimes when you are refinancing your current mortgage.
Broker Costs – US Lending< charges its borrowers $745 for processing of your loan. Many brokers will charge processing, admin, broker fee or many other miscellaneous. When in doubt ask.
Wholesaler Costs – Generally the wholesaler that will actually fund the money for you charges an Underwriting fee $750-$850, wire fee, tax service and a MERS which is electronic registration.
Appraisal – For Conventional loans done through HVCC and for FHA through an independent appraiser.
Credit – There is a cost for the Credit Report through a third party generally collected at the time of application, but can be charged at closing.
Title and Escrow Fees – This is a third party gatherer of the docs. They will collect monies, sign the loan document, provide a preliminary title report, draw up the estimated settlement statement etc. There fees are determined by the loan amount and purchase price. The standard fees that are charged include but are not limited to: Title Insurance, escrow fee, doc prep, notary, Recording, courier, endorsement and other miscellaneous expenses.
I have found that Non-recurring costs generally run between 2.5-3% of the purchase price when you pay an origination of 1%. The lower the loan amount the higher that figure can be because there are set cost ie: $695 processing that is a higher percentage of 100K than it is of 200K.
Recurring Costs depending on the month and the amount of property taxes can range from 1-1.5% of the purchase price.
It is important to know the difference between recurring and non-recurring closing costs and have an understanding of who is going to pay what. You are responsible for the down payment and all of the costs recurring and non-recurring that the seller does not credit for. If you are worried about coming up with all these costs, talk to your lender because most of the time the loan can be structured to either cover the costs, or we can have the sellers pay for a large portion of them.
EX: FHA PURCHASE 3.5% down payment requirement
100K Purchase Price – Down Payment $3500 (minimum statutory investment required by HUD)
Recurring Costs 1.5% or $1,500
Non-recurring Costs 2.5% or $2,500
Seller Agrees to Pay 3.5% toward closing or $3,500
Borrowers Estimated Cash to close would be Down Payment $3500 + Recurring Closing Costs $1500 + Non-recurring Closing Costs $2500 – Seller Credit $3500 = (3500 + 1500 + 2500) -3500 = $4000 cash out of the borrowers pocket. In this example the seller paid for all the Non-recurring costs and 1% of the recurring closing costs leaving the buyer responsible for down payment and .5% of the recurring costs or Homeowner expenses in advance.
*****Disclaimer – The Examples illustrated in the post are merely to show you and example and may not represent your transaction. The purpose of this post was to explain the difference between loan costs and pre-paid homeowner expenses. If you have any questions regarding items in this post please add them in the comment section or call your Loan Officer.****
Redding Reverse Mortgage Facts-
Myths and Facts About Reverse Mortgages
- by Dan Conley
Determining the truth about reverse mortgages is not easy. You need to be educated on the program so that you can make the best decision for your personal situation.
Basically, if you get a reverse mortgage you will be getting a loan that will allow you to have a monthly income coming in, or a large lump sum at once, or a credit line. You can get any combination of these things as well. If you have an existing loan, it will be paid off. So you will not have a house payment. The monthly income you receive from the reverse mortgage is guaranteed and you will receive it as long as you remain living in the home. Regardless of the length of your life, your debt can never be more than the worth of your home.
I have presented the 5 most commonly repeated facts and myths below to help you further understand the benefits and ease reverse mortgages will bring.
MYTH 1: The reverse mortgage lender owns your home.
FACT: In fact, you will continue to be the home’s owner and to hold its deed. There aren’t any penalties when selling, paying off, or refinancing your home.
MYTH 2: Qualification is difficult.
FACT: You only need to be 62 years of age an own your own home. You don’t need a lot of credit or a qualifying income for this.
MYTH 3: The fees associated with closing are much higher than they are for other loans.
FACT: Actually, the closing costs are very much the same as any other home loan and you will be aware of the fees prior to closing when you receive a Good-Faith Estimate. You can also choose to finance with your reverse mortgage loan. The only other cost involved may be for an appraisal in advance of closing. Often, this is the only fee you will have to pay before closing.
MYTH 4: This will affect your taxes and social security in a negative way.
FACT: The earnings you obtain from your reverse mortgage will not become an issue with Social Security benefits or income tax.
MYTH 5: There can be problems with the payment.
FACT: You will ONLY be required to pay the loan if you decide to leave the house or if it is sold. If your spouse dies then you will still be able to remain living in the house and vice versa and also the living spouse will continue to receive the exact payment amount each month. If you have any heirs, they will be presented with the opportunity to off the loan with any other assets or they can opt to refinance so that all the remaining equity will become theirs.
Gather all of the specs, when desiring a reverse mortgage loan. Keep in mind that there are other types of mortgage loan solutions and the right choice only depends on your own unique situation. Carl can help you decide which loan is right for you.
Dan Conley, Owner of US Lending specializes in helping to show his clients their hidden retirement account. You can confidentially contact him at 530-244-6830 or at Dan@USLendingCompany.com
Terms and Fees Charged at Closing
Special Report Exposes All Of The Terms And Fees That Are Charged To Buyers At Settlement
All lenders and brokers are required to provide you with a Good Faith Estimate detailing the services you may be required to get and pay for in connection with your loan.
This Good Faith Estimate will give you a way to compare loans and see what your closing costs would be. Below you will find a list of coded names that describe the different fees, which may be associated with the services previously mentioned. These codes and names correspond to those found on the HUD-1 Settlement Statement.
Broker Fees
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700 – Sales/Broker’s Commission:
If you use a real estate agent or broker to buy a house, the seller (not you) of the house will usually pay a fee to the real estate agent/broker. This commission is usually a percentage of the sales price.
Lender Fees
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801 – Loan Origination Fee
A fee to cover the lenders costs for obtaining financing and administrative costs, most often expressed as a percentage of the loan amount (1% = 1 point). Can be a flat fee and/or paid by sellers and third parties.
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802 – Loan Discount Fee Discount Points
Often called “points”, is a one-time charge to you from lender to lower the interest rate on your loan. Generally, the more points you pay, the lower your rate. Each point is 1% of the loan amount. For example, if you have a loan amount of $100,000, one point would cost you $1000. Sometimes you will see offers with negative points. Negative points refer to money paid to you that can be used to offset your other closing costs. You will usually see a higher interest rate with negative points.
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803 – Appraisal Fee
The appraisal fee covers the cost of evaluating your home to estimate the fair market value. The appraised value of your home is used to calculate LTV. See LTV for more information.
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804 – Credit Report Fee
This fee covers the cost of obtaining a credit report, which shows how you have handled other credit transactions. The lender uses this report in conjunction with information you submitted with your Q-form regarding your income, outstanding bills, and income to determine whether you are an acceptable credit risk, how much the lender can loan you and at what interest rate.
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805 – Lender Inspection Fee
This covers inspections by the lender or outside inspector of your house/property. Most often associated with new construction.
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806 – Mortgage Insurance Application Fee
You may be charged this fee to process an application for Mortgage Insurance (MI) if needed.
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807 – Assumption Fee
The assumption fee is a charge to you, if you take over the existing mortgage on the house you are purchasing. For example, if you are buying an existing house from someone you may have the option to take over the mortgage that the seller is paying.
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808 – Mortgage Broker Fee
If you use a broker to get a loan, any fees charged by the broker are listed here.
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809 – Underwriting Fee
A cost to cover the final analysis and approval of the mortgage; often the lender’s cost to the investor who will subsequently purchase the loan.
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810 – Tax Service Fee
A fee paid to set up a service which identifies the payment due date of local taxes for the servicer of the loan.
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813 – Processing Fee
A fee charged by the lender to cover costs associated with the processing and closing of a mortgage loan.
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814 – Application Fee
A fee to reimburse the lender for internal costs associated with initiating the application process.
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822 – Flood Certification Fee
Since your house is collateral for your loan, the lender wants to be sure the property is not in a flood zone. This fee covers obtaining a report from the Federal Emergency Management Agency (FEMA) that indicates whether or not your property is in a flood zone. If your home is located in a flood zone, you will need to get flood insurance. Most homeowner insurance policies do not cover flood damage. This only covers the report and not the insurance if needed.
Lender Pre-paid Items
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901 – Interest
Lenders require you to pay the interest due on your mortgage from the close date to the first day of the following month. The interest due is calculated using the loan’s interest rate, the loan amount and the number of days until your first payment. For example, if you close on the 11th of March, you will pay 21 days interest (3/11-3/31) assuming your first payment is May 1st. Mortgage interest is always collected in arrears therefore you will pay the April interest in the May payment using the example above.
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902 – Mortgage Insurance
Premium Lenders usually require Private mortgage insurance (PMI) when your LTV (loan amount divided by property value) is greater than 80%. The insurance protects the lender in case of loan default.
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903 – Hazard Insurance Premium
Since the property is collateral for the loan, you will be required to insure your house. At closing, you must pay the first year’s premium or prove that you already have coverage (if refinancing). If you are purchasing a condominium, your association policy will already cover your unit and you will not need to make this payment. Homeowner’s insurance covers you against damage from fire, wind, and other natural hazards. Flood damage is usually not covered by a Homeowner’s Insurance Policy. -
904 - Flood Insurance Premium
If your property is located in a flood zone and since the property is collateral for the loan, you will be required to have flood insurance on your house. At closing, you must pay the first year’s premium or prove that you already have coverage (if refinancing). If you are purchasing a condominium, your association policy will already cover your unit and you will not need to make this payment. Flood damage is usually not covered by a Homeowner’s Insurance Policy. Homeowner’s insurance covers you against damage from fire, wind, and other natural hazards and must be purchased separately. (See above)
Escrow Account Deposits
An escrow account is an account used when the lender will be paying your homeowners insurance and property taxes on your behalf. You prepay the amounts and the lender pays the costs as they come due. You will probably have to pay an initial amount to start the reserve account.
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1001 – Hazard Insurance
This fee represents the amount the lender withholds to ensure you pay your homeowner’s insurance on time. Typically, the lender will require you to pay two to four months of premiums at closing, and then the remaining payments are included in your monthly payments.
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1002 – Mortgage Insurance
If you need private mortgage insurance (PMI), you may be required to prepay those premiums. Remember to reference canceling mortgage insurance to see when you can stop paying it.
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1003 – City Property Tax
If your property is in a jurisdiction where city taxes apply, you will be required to pay a portion of the taxes at closing.
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1004 – County Property Tax
The amount of property tax you owe can vary dramatically by county and the date you purchase your home.
Title Charges
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1101 – Settlement or Closing Fee
This fee pays for the services of the escrow holder or settlement service that handles all the financial transfers and payments associated with the closing process. The title company sets these fees.
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1102-1104 – Title Fee
Title fees may include title search, title examination and title insurance.
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1105 – Document Abstract Preparation Fee
Lenders or title companies may charge a fee to cover the costs of preparing the final legal documents required for closing.
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1106 – Notary Fee
This fee covers the cost of a person licensed as a notary public to swear to the fact that the individuals named in the documents are the actual persons that signed them.
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1107 – Attorney Fee
You may be charged a fee to pay for legal services of a settlement service provider at closing. The lawyer will usually oversee the signing of the documents.
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1108 – Title Insurance
The total cost of your and lender’s title insurance.
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1109 – Title Insurance Lender’s Coverage
Protects the lender against loss due to problems or defects in connection with the title. The face amount of coverage is usually written for the amount of the mortgage loan and covers losses due to defects for problems not identified by title search and examination.
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1110 – Owner’s Title Insurance
This fee covers the part of the title insurance policy that protects the owner against loss due to disputes over ownership of the property. The owner’s policy is not necessary for a refinance transaction as the existing policy remains in full force and effect, if obtained when you purchased your house, for as long as the owner owns the property.
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1112 – Carrier Fee
A fee paid to an overnight delivery service for delivery of mortgage documentation.
Government Fees
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1201 – Recording Fee
After you close, your mortgage is recorded at the county office to make record of your mortgage.
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1202 – City/County Tax/ Stamps
You may be charged tax on your mortgage by the state the property resides in.
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1203 – State Tax/ Stamps (Doc Stamps)
You may also be charged tax on your mortgage by the state the property resides in.
Additional Settlement Charges
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1301 – Survey Fee
Your lender may require a surveyor to conduct a survey of your property. A survey determines the exact location of the home and the lot line, as well as, easements and rights of way. This also protects you to ensure you have record of your property boundaries and size.
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1302 – Pest Inspection Fee
This fee covers the cost of inspections for termites and other pest infestation.
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1303 -1305 – Lead-Based Paint Inspection Fee
Houses built prior to 1978 may be required to have an inspection for lead-based paint hazards.
I hope you have enjoyed this special report. We currently have over 40 creative loan programs to fit your needs. Please contact us at 530-244-6830 to set up your FREE No-Obligation consultation where we will meet to tailor a program to fit your needs and comfort levels for monthly payment and investment.
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