Even before you are presented with the sheaf of paperwork that accompanies the signing of your first mortgage, if you are a Carmel first-time home buyer, you will have already learned about closing costs—the fees and charges that pay for various parts of creating the mortgage loan. Included in closing costs are sums that can vary from inconsequential (chump change) to head-turners (“whaaaat th-?”). You’ll want to be prepared in advance for what the line items cover.
That’s where the “Good Faith Estimate” comes in. It’s a detailed document that is issued in advance; it’s a heads-up that estimates closing costs you’ll pay when you buy your new Carmel home. The GFE varies considerably from one lender to another although the overall costs tend to be more predictable. It’s easier to think of closing costs as falling into two general classifications—here’s a non-exhaustive listing of what each may contain:
Prepaid Closing Costs
• real estate taxes
• prepaid interest
• private mortgage insurance
These charges are collected to fund payments that will become due at various times throughout the life of the mortgage. Funds are generally paid into a temporary pass-through account (the “escrow account”) that gets things going—later, you’ll find them included as part of the regular mortgage payment.
Non-Recurring Closing Costs
The other charges included in Carmel closing cost calculations are the one-timers: those that have to do with the creation of the mortgage. Among them:
• Credit report – Fee paid to the lender for compiling the borrower’s credit report from the various credit bureaus.
• Underwriting fees – Covering the cost of evaluating and verifying your loan application based on the financial information.
• Origination fee – This is the lender’s charge for creating the loan: it can range from 1%-5%, depending on the type and size of the mortgage.
• Appraisal fee – Is the amount charged to determine the value of the property.
• Survey fees – The cost of verifying property lines.
• Flood zone certification fee – The expense for verifying whether the property is situated in a flood zone area.
• Title search fee – Pays for research into whether there are outstanding liens or unsettled mortgage payments on the property.
• Lenders title insurance – Insures the lender against challenges to the ownership of the property.
• Recording fees – The amount charged by a government agency for recording a real estate sale or purchase.
• Discount points – An optional amount that you may choose to pay to decrease the loan’s interest rate (and substantially lower your monthly payment).
By the time my clients reach closing, there aren’t any surprises: all the i’s have been dotted and t’s crossed. That’s how it should be: a closing is really the capstone to one of life’s momentous beginnings!