Terms    Have you ever wondered what all the Mortgage Terms Mean?

There are three broad categories of closing costs:

1. Non-recurring closing costs are items that are paid when you buy your home.
2. Recurring closing costs are items you pay time and again over the course of homeownership, such as property taxes and homeowner's insurance.
3. Prepaid expenses, which are required to be paid in advance before closing escrow.

Non-recurring Closing Costs

Loan Origination Fee:

This is often referred to as "points".  One point is equal to 1% of the loan amount.  As a rule, if you are willing to pay more in points, you will get a lower interest rate.  Most lenders charge one point on a loan.

Appraisal Fee

Since your property serves as collateral for the mortgage, lenders want to be reasonably certain of the value, and they require an appraisal.  The appraisal looks to determine if the price you are paying for the home is justified by recent sales of comparable properties.  The appraisal fee varies, depending on the value of the home and the difficulty involved in justifying the value.  Appraisal fees on VA and FHA loans run higher than on conventional loans.

Credit Report

As part of the underwriting review, your mortgage lender will want to review your credit history.  the fee can be as little as $18, but normally runs around $55, depending upon the type of credit report required by your lender.

Tax Service Fee

During the life of your loan, you will be making property-tax payments, either on your own or through an impound account with the lender.  Since property-tax liens can sometimes take precedence over first mortgage, it is in the lender's interest to pay an independent service to monitor property-tax payments.  This fee usually runs between $85 and $100.

Flood Certification Fee

Your lender must determine whether or not your property is located in a federally designated flood zone.  This is a fee usually charged by an independent service to make that determination.  This fee usually runs between $25 and $35.

Documentation Preparation Fee

Before computers made it fairly easy for lenders to draw their own loan documents, they hired specialized document preparation firms for this function.  Nowadays, lenders draw their documents and charge around $200.

Underwriting Fee

Underwriters verify that the loan package conforms to the investor's guidelines and either approves or declines the loan accordingly.  This fee usually runs between $300 and $400.

Processing Fee

Processors are responsible for sending verifications for employment, bank deposits, bank balances and packaging the loan for the underwriter to review.  This fee usually runs $300

Escrow Fee

Methods of closing a real estate transaction vary from state to state, as do the fees.  For purchases, a general rule of thumb that works in calculating escrow fees is $200 plus $2.50 for every $1,000 in price.

Title insurance

Title insurance assures the homeowner that they have clear title to the property.  The lender also requires it to ensure that their new mortgage loan will be in first position.  The costs vary depending on whether you are puirchasing a home or refinancing a home.

Notary Fees

All loan documents have two or three forms that must be notarized.  Usually, your escrow agent will arrange for you to sign these forms at their office and charge a notary fee in the neighborhood of $50

Recording Fees

Certain documents get recorded with your local county recorder.  Fees vary regionally, but probably run between $50 and $95

Pest Inspection

Also referred to as termite inspection.  This inspection test not only for pest infestations, but also other items such as wood rot and water damage.  This inspection usually runs around $75.  If repairs are required, the amount to cover those repairs can vary.  The seller will usually pay for the most serious repairs, but this is negotiable item.  Usually the pest inspection fee is paid by the seller of the home and is  normally reflected on the good faith estimate.

Home Inspection

Since it is the homebuyer's choice to obtain a home inspection or not, this is not usually reflected on the Good Faith Estimate.

Home Warranty

This is also an optional item and not normally included on a good faith estimate.  Home warranty usually covers such items as major applicances, should they break down within a specific time period.

Recurring Closing Costs

Are items you pay time and again over the course of homeownership, such as property taxes and homeowner's insurance.

Prepaid Expenses

Prepaid Interest

Mortgage loans are usually due on the first of each month.  Since loans can close on any day, a certain amount of interest must be paid at closing to get the interest paid-up to the first.  For example, if you close escrow on 20th of the month, you will pay 10 days of prepaid interest.

Homeowners Insurance

This is the insurance you pay to cover possible damages to your home and other items.  If you buy a home, you will normally pay the first year's insurance when you close the transaction.

Mortgage Insurance

Though it is rare nowadays, some first-time homebuyer programs still require the first year mortgage insurance premiums to be paid in advance.

Impound Account

If you make less than a 20% down payment, you may be required to deposit funds into an impound account.  Funds paid into this account are your funds, and the lender uses them to make the payments on your hazard insurance, property taxes, and mortgage insurance.  Each month in addition to your mortgage payment, you provide additional funds which are deposited into your impound account.

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