Types of closing costs - Certain areas of the country may have added closing costs, but these are the general types of closing costs you might see at closing:
Attorneys or escrow fees
Property taxes
Pre-Paid Interest
Loan Origination fee
Recording fees
First premium of mortgage Insurance
Title Insurance
Loan discount points
First payment to escrow account for future real estate taxes and insurance
Paid receipt for homeowners insurance policy Underwriting fee
Tax service fee
Broker fee
Appraisal Fee
Always take your Good Faith Estimate with you to compare to the fee's on the final HUD statement. You want to make sure that there were no extra added fee's.
Recording Fees are the costs to record any documents that needed to be recorded at the county clerk's office. The most likely documents that are recorded are the mortgage agreement, the note, and the deed. Recording is often done by the title company.
The Settlement document containing the final closing costs or HUD may also be referred to as the HUD-1 or HUD-1A
It is a good idea to look at both the good faith estimate (GFE) and the truth in lending (TIL) when shopping for a mortgage.
The closing costs usually can be broken down into three basic areas. 1) Costs from the lender 2) Costs from the broker (if any) and 3) Costs from third party service providers and government agencies.
Always ask questions about any fees that you do not know what they are for, especially if you notice a big difference between the fees listed on your Good Faith Estimate and your final settlement (HUD-1) paper. Closing costs are generally broken down into a few categories: lender fees, mortgage professional fees, title fees, and state/county/city fees and pre-paid items (such as escrowing for taxes and insurance and prepaid interest). Understanding where the fees and costs are going will sometimes help to understand the necessity and reasons for some of the costs.
Closing costs are fees associated with any real estate loan transaction.
Federal law requires the lender to disclose all reasonable fees at the origination of the loan on a 'good faith estimate' within 3 days of application.
All actual closing costs are then again disclosed on the closing documents , commonly called the HUD .
What comparing closing cost between mortgage brokers and lenders it is also good to have the Truth N' Lending (TIL). Some lenders will have higher closing costs with a lower rate, and vice versa. The TIL will help you compare the cost the entire loan package between lenders.
Property taxes may be credited to you if they are paid in the back or you may have to pay the property taxes if they are prepaid in that particular state.
Always ask for a copy of the final Hud-1 24 hours from closing to give you a chance to look through the fees and compare.
Most closing costs are not set in stone, and are negotiable. Some closing costs may depend on which loan program you decide to go with, and or what interest rate you qualify for.
Prepaid interest is the interest per day that the lender charges for using the money. For example if you close on the 10th of the month you will pay interest for aproximately 20 days (in a 30 day month) for using their money for 20 days then on the first of the following month your interest will start to accrue daily for the full month. The purpose is so that when you make your first mortgage payment you are only paying the 30 days worth of interest and some to the principal compared to paying for 50 days worth of interest if you were not to pay the prepaid interest.
Comparing Closing Costs - Obviously, a great way to compare closing costs is to compare the GFE (Good Faith Estimate) provided by your mortgage originator. Many times it will still be hard to tell who has the best deal. Another good item to pay attention to is the APR (Annual Percentage Rate) on the TIL (Truth in Lending) form. The APR is the percentage cost of the credit for which you are obtaining on a yearly basis. The APR was designed by the federal government to reveal the true total cost of getting a loan.
Items such as title charges, homeowners insurance, and property tax estimates may differ from on broker's GFE to another. However these items would be identical at closing. The most important section to compare is the fees in the section titled "Items payable in connection with the loan"
One fee that most likely will change is the pre paid interest. This amount will change based on the day of the month you close. If you close early in the month you can get an interest credit but your mortgage payment is due on the first of the following month instead of skipping a month of payments.
When looking at a Good Faith Estimate(GFE) to determine and compare closing costs, it is important to pay attention to items that are used to calculate the APR you will see in the Truth in Lending Disclosure. They should be checked in the PFC (Paid Finance Charge) Box to the far right side of the Good Faith Estimate(GFE).
When figuring out your loan cost make sure you take into account the money you have spent on your current mortgage. If you are restarting your term again then you have lost those mortgage payments. Granted your principle has reduced as well but its important to look at all costs when taking a new mortgage.
When comparing closing costs make sure you compare the actual closing costs to each other and not prepaid items. Prepaid items are things such as homeowners insurance, escrow accounts for taxes, insurancs, and mortgage insurance, and prepaid interest. These figures will be the same everywhere at closing, yet may differ on the Good Faith Estimates due to these figures simply being an estimate up front. The actual closing costs on the good faith estimate, even though only an estimate, should be close to the final numbers that will be on your HUD 1, or settlement statement.
When you are ready to close on your home loan, get a copy of the estimated HUD-1 from your Mortgage Consultant, before your appoinment to sign documents. This will allow you to see all fees involved so there won't be any surprises at the end.
Do not focus exclusively on closing costs: You must compare the rate you are receiving and the closing costs you are paying.
