Closing Costs: What the Borrower Should Expect

In my last blog post we discussed the two-part question mortgage shoppers should be asking;

1. What is your rate, and...
2. What are the fees (i.e. closing costs) associated with this rate?

In this post we'll look at what the closing costs consist of, so that you can better compare quotes from lender to lender.  Note - fees may vary depending on the state in which the mortgage transaction is taking place.  For the purpose of this post we are using the state of Georgia as an example.

There are two categories of settlement charges that we need to distinguish:

1. "Closing costs" consisting of one-time fees for services to close the transaction
2. "Prepaid & Escrow Fees" consisting of prorated interest, homeowners insurance and property taxes, and the establishment of an escrow account.

We'll explore #2 in a subsequent post.

First, let's look at some standard fees one can expect to find.  These fees should be pretty comparable regardless of the lender as they are all 3rd-party fees, but the lender is required to quote them:

NOTE: RATES OR FEES QUOTED BY LENDERS ARE NOT GUARANTEED UNTIL CERTAIN MILESTONES HAVE BEEN REACHED.  WE WILL DISCUSS SOME OF THESE MILESTONES AND THE "GOOD FAITH ESTIMATE" - AN OFFICIAL AND REGULATED DOCUMENT - IN SUBSEQUENT POSTS.

* REQUIRED SERVICES SELECTED BY THE LENDER *
Appraisal
Credit Report
Flood Certification
* TITLE SERVICES *
Attorney's Fee
Title Search/Exam
Title Binder
Courier Fee
Lender's Title Insurance
Owner's Title Insurance (purchase only)
Closing Protection Letter
Wire Transfer
* GOVERNMENT FEES *
Intangible Tax (0.3% of loan amount)
Deed Transfer Tax (0.1% of purchase price)
GRMA ($10.00)
Recording Fees

As one can see the list of 3rd-party fees is quite extensive.  Again, it's worth noting that these fees should be pretty comparable.

Next, here's a list of fees charged by the lender.  This list can vary not only in the name of a fee, but in the amount as well.  It's incumbent upon the borrower to understand these fees, so some additional definition is included below:

FEE NAME	A.K.A / NOTE
Origination Fee	a.k.a. "Administration Fee," "Underwriting/Processing Fee"
Discount Points	Prepaid interest to reduce interest rate (a.k.a. "Buy-down")

These two fees can vary widely.  The Origination Fee should be no more than $1,000.  As for the Discount Points, my advice is to ask for a quote with zero discount points.

Key Points:

• There are always closing costs associated with a mortgage transaction.
• There is no such thing as a "no-cost" transaction.
• As a borrower you will be paying these fees, unless the seller (in a purchase transaction) agrees to pay all or some of the closing costs, in one form or another, including:
• Higher Interest Rate
• Out of Pocket
• Added to Loan Amount (refinance only)

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