Good Faith Estimate (GFE) Closing Costs Breakdown
With a long list of charges at settlement, it's important to know what
the closing costs on a house are before you start to buy. The Real
Estate Settlement Procedures Act (RESPA) requires your mortgage lender to
give you a “good faith estimate” of all closing costs within 3 business days
of submitting your application for a loan, whether you are purchasing or
refinancing a home.
Many people send us e-mails asking "What is an estimate of
closing costs?". The quick answer is 1.5% - 4% of the
purchase price of the house. The biggest determining factor as to
whether you get to pay the 1.5% or closer to the 4% is your credit and your
knowledge of the loan process.
"Do home sellers usually pay closing costs?" This is
another big question we get. Sellers don't normally pay the buyers
closing costs and is more a factor of the current market. They do
however have certain closing costs associated with their part of the
transaction. When sellers are more desperate to sell their house the
percentage of loans closed with sellers paying some or all of the buyers
closing costs can be well north of 50%. When there are few houses on
the market and the sellers have no need to negotiate with the buyers that
number can be near zero.
Where do they go? Some costs and fees go to third
parties, some are state and local government fees that must
be covered and some go to your lender.
Simple Closing Costs
Breakdown
Detailed Closing Costs Breakdown
Section 800
Origination, Discount Points
Appraisal Fee, Credit Report
Inspection Fee, Processing Fee
|
Section 1100
Escrow Fee, Doc Prep Fee,
Notary Fee, Attorney Fee,
Title Ins. |
Section 900
Prepaid Interest, Mortgage Ins.
Veterans Funding Fee
|
Section 1200
Fees Paid to State and
Local Government |
Section 1000
Hazard Ins., School Tax,
Flood Ins. |
Section 1300
Pest Inspection |
The numbers 801, 802, 803, etc. next to each fee represent the
corresponding line used on good faith estimates (GFE's).
Items Payable in Connection with the Loan - 800
Origination Points - 801
The origination fee is charged for evaluating and preparing your mortgage
loan.
A fee borrowers pay loan officers to financially compensate them for the
role they play in evaluating, processing and approving their mortgage loan.
Your credit score and history will play a huge role in the amount of
origination points a you pay.
Unlike discount points, origination points are not usually tax
deductible.
Estimated cost: 0.5% to 2.0% of the loan amount
Discount Points - 802
Discount points are a one-time fee charged by the lender and are usually
used to reduce the interest rate of your mortgage loan. If you pay the
points at closing, instead of financing them into your loan they are
deductible on your income taxes in the year they are paid. If you're
purchasing or refinancing a second home, different deductions rules will
apply. The best way to lower your interest rate is to have the seller
pay the discount points if you're purchasing a home.
Estimated cost: 0% to 3% of the loan amount
Appraisal Fee -803
The appraisal is done to ensure the loan will meet the lenders
requirements with regards to loan-to-value (LTV). This fee pays for a
certified appraiser to go out to the home (usually)and write a detailed
report on the current condition and value of the home.
Lenders are required by federal law (the Equal Credit "Opportunity Act")
to furnish a copy of the appraisal to the borrower if the borrower requests
a copy in writing.
Estimated cost: $250 to $500
Credit Report - 804
The credit report fee is charged to cover the cost of retrieving your
credit, with scores included, so lenders can determine your credit
worthiness. Keep in mind though, it is illegal for lenders, mortgage
bankers, mortgage brokers or banks to charge you more than they have been
charged by the company providing the credit reports.
Estimated cost: $15 to $35 per couple
Lender's Inspection Fees - 805
LIF's are usually associated with new construction and are also called
called a 442 or 1004D inspection. Since the property has not been finished
when the first appraisal is completed, the 442 inspection verifies that
construction is complete with carpeting and flooring installed and the
inspectors have signed off.
Estimated costs: $175 to $325
806 and 807 do not exist on the Good Faith Estimate
(GFE)
Mortgage Broker Fee - 808
This fee is outdated as no one we've heard about is still trying to
charge this fee. If you do run into someone charging the fee ask
them to remove it or move on to another broker/bank.
Tax Service Fee - 809
The tax fee is paid to companies which do nothing but check to see that
your taxes are paid. If a tax lien does show up on your property they
will notify your lender and take appropriate action.
Estimated cost: $50 to $75
Processing Fee - 810
The processing fee is generally charged to cover the cost of a processor.
This may be a person who is either salaried (in-house) or a contracted
person who is usually paid by the loan and works for many different lenders
or mortgage brokers. The processor usually works directly with the
loan officers and does most of the tedious work that's involved with getting
your loan ready for the underwriters.
Estimated cost: $0 to $500
(The processing fee is usually negotiable)
Underwriting Fee - 811
The underwriting fee is charged by the lender to cover the cost of 1 or
more persons to underwrite your loan. These underwriters will go over
every piece of documentation you have submitted to your loan officer.
Once it is determined that your loan does indeed fall between the guidelines
set forth by the lender and all conditions have been met, the underwriter
will give final approval on your loan.
Estimated cost: $300 to $600
(Some lenders may negotiate this fee, so please speak to your loan
officer beforehand)
Wire Transfer Fee - 812
In this day and age funds are often transferred electronically. If
for instance, your lender electronically transfers the funds needed to
close, your title company or settlement agent then you would be charged a
Wire Service Fee.
Estimated cost:$25 to $50
Flood Determination Fee - 813
You'll need to pay this fee to find out whether your home is located in
flood zone. If your home is in a
flood zone lenders cannot make a mortgage loan for your home unless you
buy flood insurance. Your lender may charge a fee to find out whether the
home is in a flood hazard area.
Estimated cost: $15
(This is not the cost for flood insurance. Flood insurance would be
in addition to your homeowner's insurance and may cost from $300 to $3,500,
if required.)
Application fee
The application fee should never be charged on a residential mortgage
loan. The fee was charged decades ago before computers and the
internet. At the time, competition was low between banks, lenders and
mortgage brokers, so those that could get away with charging the fee did so.
Now with competition so fierce in the mortgage industry the only people
charging the application fee are usually the ones trying to take advantage
of borrowers.
Estimated cost: $100 to $350
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Title Charges - 1100
Closing or Escrow Fee - 1101
The closing/escrow fee is charged by the title company for opening and
running the escrow account needed for the purchase or refinance of your
property.
Estimated cost: $200 - $300
Documentation Preparation Fee - 1105
The doc. prep. fee covers paperwork the escrow company prepares for your
closing, such as creating the closing statement and other documents not
prepared for by the lender.
Estimated cost: $125 to $250
Notary Fee - 1106
This is charged when a notary republic is needed to witness and
authenticate documents that you will need to sign at the close of your loan.
Estimate cost: $5 to $100
Attorney Fee - 1107
If your having an attorney represent you, then his fee would be listed
here.
Estimated cost: $250 and up
Title insurance 1108
Most lenders require a title insurance policy, this policy insures the
lender against any errors made during the title search. If future
problems with the title due arise, the insurance covers the lender’s
investment in your mortgage.
The cost of the title policy is usually based on the loan amount and is
most often paid by the buyer. However, if negotiated the seller can
pay all or part of the cost. This title insurance policy protects only
the lender. To protect yourself against future title problems, you may
want to look at purchasing an “owner’s” title insurance policy.
Estimated cost: up to 1% of the loan amount
(Title insurance and services vary by state. For example, a
lender’s policy on a $300,000 loan can range from $500 in one state to $2600
in another.
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Government Recording & Transfer Charges - 1200
Amounts Paid to State and Local Governments
Depending on what state you live in you may be required to pay recording
fees, transfer fees and/or property taxes charged by local and state
governments. Most of the fees, such as recording fees & transfer fees,
are one-time fees. Although you can not avoid paying these taxes and
fees, you may be able to negotiate with the seller to pay some of the costs.
Estimated cost: up to 1.25% of the loan amount
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Additional Settlement Charges - 1300
Pest Inspection - 1302
The lender may require you to have a termite inspection and/or an
inspection showing the structural condition of the property. If you
live in a rural area you may be asked to have your septic system tested to
check its general condition and water tested to ensure the condition of the
well and water system will maintain a supply of water which is adequate for
the house. If water quality is an issue, the local county health
department and/or lender may require a water quality test as well.
Estimated costs: $150 to $500
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Items Required by Lender to be Paid in Advance - 900
Prepaid Interest - 901
Your first regular mortgage payment is usually due 4 to 8 weeks after you
close (for example, if you close in April, your first regular payment will
not be due until June 1st. The June payment covers the cost of
borrowing the money for the previous month (May). Interest does
however start to accumulate as soon as you close. The lender will
calculate how much interest you owe for the month in which you closed (for
example, if you closed on April 19, you would owe interest for 11 days as
part of your closing cost).
Estimated cost: Depends on a few factors and is
different for every borrower
Loan amount, interest rate and the number of days that must be paid for
A $240,000 loan at 6% for 15 days, would be around $600
A $285,000 loan at 6% for 15 days, would be around $712
Mortgage Insurance Premium - 902
Federal Housing Authority (FHA) requires you to pay mortgage insurance
premium for its programs. You can expect to pay an upfront
premium of 1.50% of the loan amount. This is paid at
closing/settlement and can be financed into the mortgage. You're also
going to pay a monthly mortgage insurance payment amount included in the
PITI (principle, interest, taxes and insurance) of .50%. If your
purchasing a condos you are not required to pay the upfront mortgage
insurance payments, only the monthly insurance payment.
If you've ever had a government loan it's a good idea to check the U.S.
Department of Housing and Urban Development refund page. You may have a
substantial refund waiting for you to claim.
Click
here for direct access to the (HUD) refund page.
Homeowner’s Insurance - 903
The lender will require that you have a homeowner’s insurance policy
(hazard insurance) in effect when you close on your loan. The policy
protects yourself and the lender against physical damage to the house by
fire, wind, vandalism, and other causes. The policy insures the
lender’s investment will be secure even if the house were to be destroyed.
If you buy a condominium, the hazard insurance may be part of your monthly
condominium fee, however this usually only covers the outer skeleton of your
condominium. You should still purchase homeowner’s insurance to cover
interior walls plus your furnishings and valuables.
Estimated cost: $300 to $2,000
Veterans Affairs (VA) Funding Fee - 905
The veterans affair fee
is currently just over two percent on no down payment loans for a first-time
use. The funding fee for second time users who do not make a down payment is
over three percent. The basic idea behind the higher fee for second time
users is based on two reasons. One is the fact these veterans have
previously used their benefit once already, and second they've had a chance to
accumulate equity or save money towards a down payment on their next house.
| Percent Down |
Veteran Fee |
National Guard Reserve Fee |
| 0% to 4.99% |
2.00% |
2.75% |
| 5% to 9.99% |
1.50% |
2.25% |
| 10% and up |
1.25% |
2.00% |
Second use with less than 5% down requires 3% funding fee.
No funding fee is required if you are a disabled veteran.
The funding fee may be financed into the loan.
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Reserves Deposited with Lender - 1000
Your reserve account is made up of 2 to 6 months worth of payments on
reoccurring charges.
Hazard Insurance - Homeowners Insurance - 1101
Mortgage Insurance - 1102
School Tax - 1103
Taxes and Assessments - 1104
Flood Insurance - 1105
For additional help with "closing costs on your
house" try our free
closing cost calculator