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CLOSING COSTS UNCOVERED
“I investigated several other
sources and got the best
rates and closing costs at
Affinity.”
- Dennis from FL
Which Closing Costs to Question?
Origination Fees
Discount Fees
Excessive
Administrative or
Underwriting Fees
Excessive Title Fees
Ask your loan officer to explain all closing costs line by line.
Save Hundreds of Dollars at Closing by Better Understanding Closing Costs! By Michael Baker, Sr. Loan Officer at Affinity Mortgage
The number one question we receive from our clients is: What are these
closing costs?
Adding to the confusion of closing costs is that from lender to lender and
title company to title company different terms can be used.
In this eBook I will uncover standard closing costs, explaining each one.
We’ll also discuss which costs to be leery of, to look out for, and which
ones to avoid all together (look for these in BOLD and RED).
Not every Loan Officer and Lender are “out to get you” but many are still
working under old and antiquated ways of originating loans. This leads to
old and antiquated closing costs that many times you just should not be
paying for.
Let’s dig in...
Administrative Fee or Underwriting Fee
It is typical for a bank or mortgage lender to charge a fee for
the work they do in underwriting the file. Your first thought
probably is “Hey wait a second! You’re about to get 4% a
month in interest from me, and you want to charge me an
additional fee to just underwrite the file!?” You’d be right to
think that way, but many times banks or mortgage lenders will
underwrite many files that never get to the closing table.
Those files still require resources, underwriters and
processors, working on these files and when loans don’t close
from time to time those costs can add up quickly.
Administrative fees can vary from lender to lender. We
typically see them from anywhere around $0 (for many
Veteran’s and VA loans) upwards of $995. Where things can
get tricky is from time to time you will see lenders advertising
NO FEE’s options, but as we all know, nothing in life is truly
FREE. Many times when lenders say they have $0 in fees
you see that come full circle in a higher interest rate. You
have to do the math in these scenarios… is it better for me to
pay a $0 Admin Fee and take a .25% higher interest rate? Or
vice-a-versa. The Admin Fee is generally one paid at closing
and you shouldn’t pay this fee unless your loan closes (at
least that’s how it works at my company, and I would question
ANY other company that is trying to charge this to you up
front).
Appraisal Fee
Most home loans, purchase or
refinance, are going to require an
appraisal. The bank lending you the
money is going to want to make sure
that they aren’t over lending you money
and the easiest way for them to find this
out is via an appraisal. These generally
run between $400 and $600 depending
on the type of loan and type of property
you are purchasing or refinancing. The
appraisal fee is generally an item you
pay for up front, since the appraiser
does is work prior to your loan being
closed.
Tax Service Fee
For loans that have their insurance and
taxes escrowed (or impounded –
meaning rolled monthly into your
mortgage payment) there is a Tax
Service Fee. This is a one time fee
charged at closing. The fee goes to the
mortgage servicer who will handle the
monthly collection of your tax payment
and subsequent paying out of your tax
bill throughout the year when the bill is
due.
Discount Points
Discount Points should be a huge RED FLAG when it comes to
closing costs.
Discount points are figured as a percentage of your loan amount.
These can be used for good or evil, let me explain. Generally when
you are charged Discount Points you are doing this to “buy down”
your interest rate lower. Let me give you an example, let’s say that
today based on your merits alone (credit score, down payment, the
type of loan you are doing, etc) that the “par” interest rate (or the rate
you get WITHOUT paying any points) is 3.25%. Then the loan officer
gives you a Discount Points option whereby you can get a 3.00% rate
by paying 2 discount points (or 2% of your loan amount).
This is where math (specifically Return on Investment or ROI) comes
into play. If you have a $250,000 loan amount then 2% in discount
points would cost you an additional $5,000 fee to lower that rate from
3.25% to 3.00%. On a 30 year fixed loan option this amounts to an
interest savings of $34.01 a month. Calculating the ROI (Return on
Investment) we see that it takes you 147 months, or 12 years and 3
months to recoup your $5,000 investment to “buy down” the rate.
Given that this is a 30 year mortgage you might think that’s a “pretty
good deal”. However, we generally counsel clients that you want to
see yourself recoup those costs in 7 years or less. The reason for
this is the average person is only in their current mortgage for 7
years. Even if this is your “forever home” there is a good chance that
over time you will refinance to take cash out of the equity in your
home to say remodel your kitchen. Or perhaps you will refinance into
a lower term, etc. So do the math and be leery of any points options
that take longer than 7 years to return your investment of the added
costs of the points option.
Flood Certification Fee
Every home, whether it be on a
mountain top or in a valley next to a
river, is going to require that a flood
certification be done to find out if the
home resides in a flood zone. If your
home is in a flood zone it generally
requires specific flood insurance on top
of your standard home insurance and a
lender needs to know this up front. This
fee is usually $5-15 and is an item that
is billed at closing.
Government Recording
Fee
These fees will vary greatly from county
to county and state to state. Please
check with your loan officer. The two
typical fees we see are city/county/state
mortgage tax stamps and recording
fees. These fees are billed at closing
and not something you pay for up front.
Origination Fee
Origination fee is another RED FLAG when it comes to closing
costs.
The origination fee is generally a percentage of your loan
amount. Years ago it was typical for a lender to charge 1%
origination fee as their fee for originating the loan for you.
Things changed over the years though and now most lenders
get paid on the back end of your loan a percentage of your loan
amount after your loan closes. When I see lenders charging
origination fees up front I say run for the hills. Now days the
only thing an origination fee is good for is lining the pockets of a
greedy loan officer. It is just added profit that goes straight to
the bottom line of a lender.
Credit Report Fee
A lender is going to pull your credit and ultimately this is a
charge that is passed on to the borrower. For me and my
company this is a charge that we bill to closing. Meaning that if
your loan doesn’t close for whatever reason you don’t get
charged for the credit report. However, this is a fee that is
allowed to be charged to the borrower up front. These credit
report fees can be as low as $15 and go up to $100 or more
sometimes depending on if your specific credit report has
additional items that are needed on top of the standard credit
report itself (as determined by your underwriter).
Funding Fee
Some loans like VA and FHA loans
require an upfront funding fee. This is a
percentage amount of your loan and
can vary from as little as .5% to as high
as 3.3% of your loan amount.
Disabled Veterans get the funding fee
waived on a VA Loan.
This is a fee put in place by the
government to help fund the types of
associated loan programs. These
funding fees are not generally paid up
front nor at closing, they are actually
instead rolled into the loan amount
itself.
For instance if you have a $200,000
loan amount and a .5% funding fee
($1,000) then you end up with a loan
amount of $201,000. In this case the
funding fee is simply financed into the
loan amount.
Title Fees
Any time a home is purchased or refinanced we must engage a
title or escrow company. They review all title work, deed, and
abstract and make sure that the home is properly free of any
encumbrances (liens, encroachments, and easements).
A title company is generally going to charge the following fees;
Closing or Escrow Fee, Lenders Title Insurance, Owner’s Title
Insurance, Attorney Fee, Notary Fee, Abstract Fee… and
sometimes more. It is impossible for me to list each and every
fee as title companies can vary their fees based on their
specific business models, and then from county to county, state
to state, these fees can vary even more.
Two things to note:
1. Many/most title companies have a “title fee calculator” on
their website. This can be a great resource to get an idea of
what to expect.
2. More importantly would be to check with your loan officer.
Many times we have special pricing set up with title companies,
pricing that is better than you could get if you contacted the title
company directly.
Ask your loan officer and they will provide the title company
fees for you. These are items that are paid at closing, but be
careful to check with the title company you use, as some title
companies will bill you for title fees even if your loan doesn’t
close.
Escrow Reserves
While these are not technically “fees”
they are still “costs” that you must incur
at closing.
It is typical to put at least 2 months of
your taxes and home owner’s insurance
into your escrow account up front. Over
time your home owner’s insurance and
tax bills will more than likely rise. A
mortgage servicer likes to be prepared
for this by having a couple of extra
months of your insurance and tax bills
set aside so as to not shock you when
these amounts change.
Depending on what month of the year
you close however, more than just two
months may need to be collected
depending on what month your loan
closes.
Along with a couple months of taxes
and insurance reserves, if this is a
purchase, you can expect to have one
full year of your home owner’s
insurance premium collected as well at
closing.
Please Note...
These fees above are not all inclusive. There could be
additional fees needing to be collected on your loan depending
on different circumstances, loan types, additional title items that
arise or perhaps different government recording fees based on
your specific city/county/state.
Please remember that different lenders can call these fees/
costs by different names. The key is to get a “Loan
Estimate” (use this phrase specifically) up front from any
lenders you are shopping and then compare notes with all the
lenders you are shopping.
You can always feel free to send me the Loan Estimate of any
lender and I am happy to match them up apples to apples to
make sure you aren’t paying for a needless and pointless junk
fee!
Homes these days are already super expensive, don’t overpay
for your loan costs.
Thank you!
Contact Info
Michael Baker
Sr. Mortgage Loan Officer
Affinity Mortgage, LLC
8725 Rosehill Rd.
Ste. 109
Lenexa, KS 66215
(913) 735-5363 (call or text)
mbaker@affinityhomeloan.com
Facebook.com/bakerloans
Twitter: @affinityloans
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