It’s important to know the numbers and understand how you can negotiate with your lender and in some cases the seller to help you get these numbers down.
When you fill out a loan application the bank, loan officer or broker has 3 days to provide you with a good faith estimate. This good faith estimate (GFE) will show fees and credits. Because we now have a new (GFE) that is not easy for some to read I provide a fee sheet that breaks down all the fees line by line. If you don’t get this from your lender ask for it. HUD has also provided a book with a step by step of how to read it. Funny it was suppose to be less confusing for the consumer but yet they feel the need to explain how to read it. HUD Booklet
I’d like to go over a list of closing fees that cannot be negotiated because they are third party fees charged for services.
1. Credit Report fee; This is paid by you upfront or by the lender and is needed to get your credit history so your loan can be priced out and have your credit analyzed for loan approval.
2. Appraisal fee; This is also paid by you upfront in most cases and the price varies greatly depending on what part of the country your home is located. We are seeing many of the new refinancing programs where value can be determined using automated systems some lenders are waiving the need for physical inspections.
3. Title and Escrow fees; Title insurance, escrow fee, notary, recording, courier, doc prep, and other misc fees are determined by your Title and Escrow company. You can shop for best pricing and if you are the buyer, you are allowed to pick the title company of your choosing. I’ve seen these vary so do call around and get a fee quote. Ask for it in writing so they will know about you and honor the quote once you choose them.
4. Flood Certificate; Lender will require this document to determine if your home is in a flood zone.
This cost is minimal but I’ve never closed a loan without it.
5. If you are applying for VA, FHA, USDA or any other government type of loan; any fee associated with that loan program cannot be negotiated. They can however in most cases, be paid for by the seller and you or your Realtor can negotiate those terms.
Now for those fees that are negotiable.
1. Origination Fee or Broker Fee; This fee is charge to a borrower for the simple reason that it cost to process and complete your loan, i.e. “The Cost to do business”
2. Lender Fees; underwriting, processing, administration and application are the most common.
3. Discount Points; These are based on a percentage of your loan amount, i.e. 1 Point is 1% of your loan amount. Each point you pay reduces the interest rate you will pay on your loan.
Now for your reoccurring or prepaid closing costs; These costs will be associated with your loan no matter where you go for your loan. They will vary only depending on the day of the month your loan closes.
1. Interest per day on your new loan; Just that it’s the interest calculated on your new loan until your first payment of interest and principal start calculating. Remember your mortgage payment is always paid 30 in arrears. For example if you close your new loan on the 15th of June, your closing HUD statement would reflect 15 days of interest paid to your new loan, and your first payment would be due on August 1, July’s interest and principal is due August 1… another cool stat is in most cases when you refinance you get to skip a month of making a house payment.
2. Insurance; Your homeowners insurance, I encourage everyone to shop their current company and get the best pricing on the market. If you haven’t you are probably paying too much.
If you are buying get several quotes for your new home early on and choose one. Getting this information to your loan officer early can save time at closing.
3. Taxes; Property taxes vary from county to county in the US, it’s important to understand when they are due and how to pay them. Ask your escrow officer at your signing to explain due dates to you.
4. Impounding both Insurance and taxes and paying them in your mortgage with each monthly payment;
This is a very important part of buying and refinancing a home. The lenders have taken it upon themselves to help you make this decision with a huge incentive. Let me explain,
If you have an 80% or above Loan-to-value (LTV) the lender requires an impound or escrow account be created at the onset of your loan, because your loan is considered at higher risk.
If you are at or below 80% LTV and you choose to NOT have an impound account. Because it is up to you, they charge you .250% hit to your pricing. This encourages borrowers to create an impound account with their lenders. The lenders do this so they know the taxes and insurance are getting paid on the property that secures their loan.
· Buyers and Realtors when possible can negotiate with seller to help with the cost of closing. Most loan programs will allow for seller assistance of 3% to 6% of the purchase price and in most cases this is enough to cover all of the buyers closing costs leaving just the down payment to be covered by the buyer. This alone would help move more houses in this market. We are seeing more banks with foreclosures, REO’s doing this, don’t be afraid to ask!
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ACMC, Loan Consultant