Tell me more about closing fees and how they are determined.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees, but it is more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. We take quotes very seriously. We've completed the research necessary to make sure that our fee quotes are accurate to the city level - and that is no easy task!
To assist you in evaluating our fees, we've grouped them as follows:
Third Party Fees
Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees.
Third party fees are fees that we'll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees.
Typically, you'll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.
Taxes and other unavoidable items
Fees that we consider to be taxes and other unavoidable items include state/local taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don't quote you fees that include taxes and other unavoidable fees, don't assume that you won't have to pay it. It probably means that the lender who doesn't tell you about the fee hasn't done the research necessary to provide accurate closing costs.
Fees such as points, document preparation fees, and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.
This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.
One of the more common required advances is called "per diem interest" or "interest due at closing." All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you'll pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we'll collect interest from June 15 through June 30 at closing. This also means that you won't make your first mortgage payment until August 1. This type of charge should not vary from lender to lender and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.
If an escrow account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
If your loan is a purchase, you'll also need to pay for your first year's homeowner's insurance premium prior to closing. We consider this to be a required advance.