Closing on Your Loan and Good Faith Estimate
Loan Origination Fee:
This is a fee charged by the lender to originate the loan, or reserve funds for your loan in the pool of mortgage money. It is usually one “point,” or one percent of your base loan amount.
Points:
(Also called discount points) This term refers to the cost of “buying down” your interest rate. One point is equal to one percent of your loan amount. For example, if a loan is for $100,000, one point is $1,000.
Credit Report:
At the time you make your loan application, your mortgage lender will order a Residential Mortgage Credit Report. This report is a detailed history combining information from two or three credit bureaus, and covers the last several years of your credit history. The cost of a credit report can vary, but usually ranges from $35 to $65.
Appraisal Fee:
A professional appraiser will provide a written report that estimates the value of the home. As discussed earlier in this workbook, the appraised value of the home is one part of the equation used to figure your “loan-to-value” ratio (LTV). Currently, the cost of a residential appraisal ranges from $400 to $500.
First Year’s Mortgage Insurance Premium:
When your down payment is less than 20 percent of the home’s value, you will be required to buy mortgage insurance that protects the lender against loss due to foreclosure. This insurance premium is usually added into your monthly mortgage payment.
Hazard Insurance Premium:
You will need to prepay the hazard insurance premium for specified number of months.
Commitment Fee:
This is the cost of reserving your loan with a lender at a certain rate and amount, provided that the loan is closed within a specified period of time.
Lender’s Title Insurance Policy:
This is insurance for the mortgage lender against any defects in the title that may jeopardize ownership (e.g. forged documents, undisclosed heirs, etc.). The liability is limited to the outstanding loan balance at the time of any claim. Rather than a monthly premium, title insurance is paid for in advance as a one-time fee. It becomes void when the loan reaches a zero balance.
Owner’s Title Insurance Policy:
This is the owner’s insurance against any defects in title that may jeopardize ownership (e.g. forged documents, undisclosed heirs, etc.).
Property Taxes:
Property taxes are customarily paid in arrears. Therefore, they are prorated at the time of closing in order to make sure both the seller and buyer each pay only their fair share.
Recording Fee:
This is the fee charged by the county clerk to record your deed or mortgage in the official records.
Survey Fee:
A professional surveyor will determine boundaries and land area of the property you wish to purchase. Lenders generally require a survey of the property before they approve your loan. Survey fees typically rage from $250 to $400.
Inspection Fee:
This is the cost of hiring a professional inspector to inspect the structural and major mechanical systems of the home. In most cases, the buyer pays for the inspection. Although an inspection is usually not required, it is strongly encouraged as it helps the buyer make a more informed purchasing decision.