In 1974, Congress passed the Real Estate Settlement Procedures Act (RESPA) that requires lenders to disclose the various loan costs. As you probably already suspect, RESPA does not regulate those costs. Lenders can charge whatever they think the market will bear. The important thing to remember is that lenders are required by law to disclose their fees in the Good Faith Estimate, along with the APR. Doing your homework comparing lenders and shopping for the best deal is up to you as an informed consumer.
Closing costs vary slightly from state to state. Some areas require an attorney to handle the closing, while other areas require a formal escrow. Otherwise, the following closing costs are pretty much the same throughout the country. Just remember that nothing is sacred and everything is negotiable, especially in a lender-hungry market. Appraisal fees can vary depending on sales price and area, typically $400–$900 for homes less than $250,000. You’ll still want to compare line 803 on the Good Faith Estimate. If lenders are hungry . . . well, you know what to do.
On line 804 you’ll find the credit report fee, usually $40–$80. This fee is not transferable, and if you go to another lender, you’ll pay this fee again. On the bright side, sometimes you can get a hungry lender to waive this fee Discount points, are prepaid interest a lender charges to buy down the interest rate. Each discount point is equal to 1 percent of the loan amount. On a $150,000 loan, that would be $1,500. Normally, each point will buy down the interest rate about one-eight of a percent for the life of the loan. Points are a favorite tactic money people and builders use so that they can quote a lower than market interest rate. They make the low quote by charging points as part of the closing costs. Line 802 on the Good Faith Estimate details the point costs you and your lender should hopefully have agreed on.
Document Preparation and Processing fees are undoubtedly the most abused garbage fees on the statement. You’ll often find them in three different places, in the 800s column, on line 1105, and in the 1300 column. It appears that everyone involved in the transaction wants a document or processing fee.
Just remember, the 800 column on the Good Faith Estimate is where most of the soft fees are. That’s where you can do the most haggling.
The lender will require you to furnish a Homeowner’s insurance policy. Often the company that insures your car will give you a discount if it does your homeowner’s policy. Still, shop around and get at least three bids.
The insurance company will send the bill to the lender, and it will appear on line 903 of the HUDs as part of the closing costs. If your loan is more than 80 percent, the mortgage company will probably set up an escrow and collect extra each month to pay property tax and homeowner’s insurance when it is due. To get this escrow started, the lender will charge you three or more months at closing to make sure there are enough funds in the account. These charges appear in the 1000 column.
On line 901, the lender will charge you interest from the day of closing to the end of the month. Your first payment will then be due the following month, on the first.
For example, if your loan is $175,000 at 6 percent interest, the first month’s interest will be $875. Divide this by 30 days, and the daily interest cost is $29.17. Suppose your closing is on the 16th; that gives you 14 days to the first of the next month. (Lenders usually go by 30-day months) Multiplying 14 days times $29.17 per day interest equals $408.38, which goes on line 901 of the HUDs. In the case of the Good Faith Estimate, the lender doesn’t know what day you’ll close on, so line 901 is a guess. Lender’s title insurance is required by the lender to protect its interest in the property. It’s on line 1108 and is one of those fees you’ll have to pay to get the loan.
Mortgage insurance or MIP is an insurance policy that protects the lender from default on loans with less than 20 percent down. Typical costs are .65 to .75 percent of the loan amount, depending on credit and down payment. This fee is included in the monthly escrow, along with taxes and homeowner’s insurance.
For example, a $165,000 loan with 10 percent down and .65 percent PMI would have a yearly fee of $1,072.50. ($165,000 _ .0065). Dividing this by 12 months equals $89.38, which would go on line 902 for the first month’s premium.
The origination fee on line 801 is what your lender charges to put the loan together and find an investor to buy it. Usually this fee is 1 percent of the loan amount.
Is the loan origination fee negotiable? Sometimes. Remember the rule—nothing in the 800 column is sacred. If your brother-in-law is doing the loan, this is a fee to haggle over. If the lender hasn’t padded any of the other fees, they are probably worth their 1 percent or whatever you can get them down to.
Closing costs vary slightly from state to state. Some areas require an attorney to handle the closing, while other areas require a formal escrow. Otherwise, the following closing costs are pretty much the same throughout the country. Just remember that nothing is sacred and everything is negotiable, especially in a lender-hungry market. Appraisal fees can vary depending on sales price and area, typically $400–$900 for homes less than $250,000. You’ll still want to compare line 803 on the Good Faith Estimate. If lenders are hungry . . . well, you know what to do.
On line 804 you’ll find the credit report fee, usually $40–$80. This fee is not transferable, and if you go to another lender, you’ll pay this fee again. On the bright side, sometimes you can get a hungry lender to waive this fee Discount points, are prepaid interest a lender charges to buy down the interest rate. Each discount point is equal to 1 percent of the loan amount. On a $150,000 loan, that would be $1,500. Normally, each point will buy down the interest rate about one-eight of a percent for the life of the loan. Points are a favorite tactic money people and builders use so that they can quote a lower than market interest rate. They make the low quote by charging points as part of the closing costs. Line 802 on the Good Faith Estimate details the point costs you and your lender should hopefully have agreed on.
Document Preparation and Processing fees are undoubtedly the most abused garbage fees on the statement. You’ll often find them in three different places, in the 800s column, on line 1105, and in the 1300 column. It appears that everyone involved in the transaction wants a document or processing fee.
Just remember, the 800 column on the Good Faith Estimate is where most of the soft fees are. That’s where you can do the most haggling.
The lender will require you to furnish a Homeowner’s insurance policy. Often the company that insures your car will give you a discount if it does your homeowner’s policy. Still, shop around and get at least three bids.
The insurance company will send the bill to the lender, and it will appear on line 903 of the HUDs as part of the closing costs. If your loan is more than 80 percent, the mortgage company will probably set up an escrow and collect extra each month to pay property tax and homeowner’s insurance when it is due. To get this escrow started, the lender will charge you three or more months at closing to make sure there are enough funds in the account. These charges appear in the 1000 column.
On line 901, the lender will charge you interest from the day of closing to the end of the month. Your first payment will then be due the following month, on the first.
For example, if your loan is $175,000 at 6 percent interest, the first month’s interest will be $875. Divide this by 30 days, and the daily interest cost is $29.17. Suppose your closing is on the 16th; that gives you 14 days to the first of the next month. (Lenders usually go by 30-day months) Multiplying 14 days times $29.17 per day interest equals $408.38, which goes on line 901 of the HUDs. In the case of the Good Faith Estimate, the lender doesn’t know what day you’ll close on, so line 901 is a guess. Lender’s title insurance is required by the lender to protect its interest in the property. It’s on line 1108 and is one of those fees you’ll have to pay to get the loan.
Mortgage insurance or MIP is an insurance policy that protects the lender from default on loans with less than 20 percent down. Typical costs are .65 to .75 percent of the loan amount, depending on credit and down payment. This fee is included in the monthly escrow, along with taxes and homeowner’s insurance.
For example, a $165,000 loan with 10 percent down and .65 percent PMI would have a yearly fee of $1,072.50. ($165,000 _ .0065). Dividing this by 12 months equals $89.38, which would go on line 902 for the first month’s premium.
The origination fee on line 801 is what your lender charges to put the loan together and find an investor to buy it. Usually this fee is 1 percent of the loan amount.
Is the loan origination fee negotiable? Sometimes. Remember the rule—nothing in the 800 column is sacred. If your brother-in-law is doing the loan, this is a fee to haggle over. If the lender hasn’t padded any of the other fees, they are probably worth their 1 percent or whatever you can get them down to.
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