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| Typical Closing Costs
APPRAISAL FEEThis is charged to pay an appraiser to research and assess the market value of the property on which a mortgage is being placed. Instead of being charged for separately, this fee may be charged for as part of a mortgage application fee.
COURIER/MESSENGER FEESThis fee pays for overnight courier services and messenger services used to transport documents to and from the lender and to and from the local county courthouse where the deed and mortgage are recorded.
CREDIT REPORT FEEThis is charged to pay a credit service bureau to provide the lender with a report detailing a borrower's credit history. Instead of being charged for separately, this fee may also be part of a mortgage application fee.
DOCUMENT PREPARATION FEEThis is sometimes charged by lenders to offset costs associated with preparing paperwork for a loan closing.
FLOOD CERTIFICATION FEEThis is charged to offset fees paid by lenders to flood service companies to determine initially and on an ongoing basis, whether properties on which the lender has a mortgage are part of or become part of a "flood hazard area" as determined by appropriate Federal agencies. If so, the property owner is required to obtain flood insurance.
HAZARD INSURANCE ESCROWSimilar to real estate tax escrows, many lenders require that they collect 1/12 of the property's annual hazard insurance premium with each mortgage payment to fund an escrow account from which the lender will pay the premium when it becomes due. (Hazard insurance is property insurance that you are required to purchase to cover any damage that may occur to the property itself or to someone while in or on the property.) Even though in a purchase transaction you are required to pay the first year's premium prior to or at the closing and in a refinance transaction the insurance may be paid up for many months following the closing, the escrow insures that the lender will have enough money in your escrow account when the premium next becomes due. The lender is also entitled to collect an additional amount to provide a one to two month "buffer" in your escrow account.At closing, hazard insurance escrow requirements generally range from two months in purchase transactions to anywhere from one to eleven months in refinance transactions.
INSPECTION FEEThis may be charged if a lender has to have someone inspect a property after an appraisal has been done. For example, if work being done to a property is not completed at the time the appraiser viewed the property.
MORTGAGE INSURANCEIn the event that the loan you are requesting from the lender exceeds 80% of the market value of the property being mortgaged, the lender will generally require you to pay for obtaining a mortgage insurance policy. This protects the lender if you default on your loan and the equity in the property is not sufficient to cover any losses the lender incurs as a result of that default. Depending on the amount by which the "loan to value ratio" exceeds 80%, the first year's premium generally ranges from .35% of the loan amount to 1% of the loan amount. The first year's premium, which is generally higher than subsequent premium amounts, is sometimes paid at time of closing.
MORTGAGE INSURANCE ESCROWIn the event you are required to obtain mortgage insurance, as described above, the lender will generally require that they collect 1/12 of your mortgage insurance premium with each mortgage payment to be able to pay the premium when it next becomes due. The first year's premium is sometimes paid at closing with an additional one or two month payment being collected to begin the escrow account.
POINTSThese are fees charged by lenders that help lenders offset the costs lenders incur by providing you with mortgage funds. One point equals 1% of the loan amount. In a typical transaction, a borrower pays from 0 -2 points to the lender. The number of points is directly related to the interest rate charged by the lender. The more points a borrower pays, the lower the interest rate and vice versa.
PREPAID INTERESTAt the time you obtain a mortgage loan your first payment is generally due on the first day of the second month following your loan closing. That is because mortgages are generally paid "in arrears". (In other words, the payment being made on the first day of the month is for the interest due for the month preceding the payment.) For example, if you close on the 15th day of January, your first payment will be due on March 1 and that payment will pay for the interest accrued during the month of February. Therefore, the lender at closing, will charge you for the interest due for the period from the date of the closing to the beginning of the following month. (In our example, that period would be from January 15 to February 1.)As a result, depending on the day of the month in which you close, prepaid interest can be from 0 days to 30 days. Prepaid interest (on a per diem basis) is calculated by multiplying the loan amount by the annual interest rate and dividing that number by 360 or 365 (depending on the lender).
REAL ESTATE TAX ESCROWMany lenders will require that they collect 1/12 of the property's real estate taxes with each monthly mortgage payment that you make to fund a tax escrow account from which the lender wil make the real estate tax payments as they become due. Since real estate tax payments are due at different times during the year, the lender may need to collect all or a portion of the next real estate tax payment at the time of your loan closing (depending on the month in which the closing occurs) to insure that they have enough money in your escrow account when the next tax payment becomes due. The lender is also entitled to collect an additional amount to provide a one to two month "buffer" in your escrow account.
SURVEY FEESThis fee is charged to pay a surveyor/engineer to survey the property being mortgaged and prepare a "plot plan" which includes a certification that the structures and other improvements on the property do not violate any property laws and do not encroach upon anyone else's property.
TITLE SEARCH FEE / TITLE EXAMINATION FEEThese fees (generally expressed as either a title search fee or a title examination fee) are charged to pay for the cost of researching and/or examining the records of the county in which the property lies to determine that the title to the property is free and clear of all defects, liens and encumbrances that could affect the use and/or value of the property. TITLE INSURANCE FEE This fee is charged to pay for a title insurance policy (known
as a "lenders title insurance policy" which protects the lender
in the event there is a defect in the title to the property. Most
lenders require that such a policy be purchased by the borrower
at closing. The borrower has the option of purchasing an "owner's title insurance
policy" to protect the borrower's interest in the property in the
event there is a defect in the title, for an additional premium.
However, an owner's policy is not required by the lender. UNDERWRITING FEE / PROCESSING FEE These are types of fees charged by some lenders to offset the costs lenders incur in reviewing a borrower's application for a mortgage loan.
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