When Closing costs can be as much as 4% of the mortgage size

Closing costs can be as much as 4% of the size of your mortgage. Make sure you understand what they are. When you refinance a home, you have to pay the dreaded closing costs. I have compiled a list of the major costs you will face when you purchase a home.

Property Appraisal
This is the first expense you incur. A mortgage lender will want to know what the property is worth. Often it is different from what a Realtor thinks it is worth. An appraisal is done by a licensed appraiser who provides an independent, unbiased value based on a variety of factors. The cost of an appraisal is around $350, and it is something you pay for up front. Typically, the appraisal is ordered by the mortgage broker, and can not be used by a different broker. Thus, ordering an appraisal is seen as a commitment by the home owner that he or she is ready to commit to do the refinance. If you have a recent appraisal, it is possible that the appraiser can re-assign it to the mortgage company for a fee less than that of a complete new appraisal. There is still work that the appraiser must do even on reassigning an appraisal.

Processing Fee
This is a fee that the mortgage company charges to process the loan. It can average about $500, up to $800.

Underwriting Fee
This is a fee that the lender charges to underwrite the loan. It can cost an average of $700. Often times, a loan officer or mortgage broker will NOT disclose this on the Good Faith Estimate. Most borrowers only learn about this fee at settlement!

Loan Discount Fee
These are any pre-paid points you are paying to get a lower discount rate. 1 point is equal to 1% of the loan amount. Thus, on a $200,000 mortgage, if you are going to pay 2 points you need to come up with $4,000.

Origination Fee
This a lender fee that is often charged on sub-prime loans that covers the overhead and earnings of the loan officer and the mortgage company. Often, this is 1% of the loan amount.

Recording Fees
These are the fees paid to record your deed and mortgage with the county. These fees can be as much as $300.

Survey Fee
Some states require a survey be done on a property at a cost of around $200, even on a refinance.

Settlement Company Fee
The settlement company may charge a fee of up to $300 for the use if its facilities and the time of its settlement officer to handle the loan closing.

Title Insurance
Title insurance is protection against loss arising from problems connected to the title to your property. As with mortgage insurance, it protects the lender but you pay the premium, which is a single-payment made upfront. The cost varies from state to state, but you can assume that it will be about 1% of the loan amount.

Document Preparation Fees
Title companies charge as much as $250 to prepare the loan package and deed.

Escrow of Taxes and Insurance
If you are having your property taxes and homeowner’s insurance paid with your mortgage, you will have to provide an escrow, which is a lump sum amount that gets paid in advance. This amount can be equal to 1 year’s taxes and insurance, but on the average is 6 month’s worth of these payments.

Prepaid Interest
Depending on the day of the month that you settle, you will have to pay pre-paid interest at the daily rate based on your mortgage interest rate. You will only know this once you determine a settlement date.

Credit Report
You will typically pay $20 or so for your credit report at settlement.

Mortgage Taxes
Depending on your state and county, you may have to pay a tax of up to 1.5% on the amount of the mortgage. if you call my office, I can advise you if this mortgage tax applies to you.

Attorney / Notary Fee
in many states, the lawyers get involved, and get their fee. This fee can be as much as $500.

Closing Cost Example
To give you an example of what these fees can run, let’s look at the refinance of a $250,000 home in PA where there is no mortgage tax, with 100% financing at an interest rate of 6% with 2 points. Assume that the property taxes are $2400/yr and hazard insurance is $900/yr.

  • Appraisal: $350
  • Inspection: $300
  • Processing: $800
  • Underwriting: $500
  • Points: $5,000
  • Recording: $300
  • Survey: $200
  • Settlement: $300
  • Title Insurance: $1,600
  • Doc Prep: $250
  • Escrow: $1,150
  • Pre-paid Interest: $555
  • Credit Report: $20
  • Grand Total: $11,325

Can anyone say “sticker shock”? This is 4.53% of the loan amount!

This is not a complete list of settlement fees, but it does cover all the major ones you will face as a home buyer. Thus, you need to add up these costs and see if you have this cash available. If you don’t we need to work with your Realtor to see if the seller is willing to do a seller assist to cover some of your closing costs. I can prepare a Good Faith Estimate for you that will show you an estimate of what your actual costs will be. Please contact me if you want to get an understanding of what you are looking at.

2 thoughts on “When Closing costs can be as much as 4% of the mortgage size

  1. You may not want to hear this, but your perception of what a reasonable rate is and what your lender thinks is a reasonable rate are completely different. While you are looking at your rate for your 20% loan and comparing it to your first, your lender is pricing your second mortgage to adjust for the increased risk of lending out 100% of the value of your home. If you are looking to replace your current second mortgage, understand that there are no real deals out there for stand-alone second mortgages and there are not many lenders (especially now) that offer stand-alone. Your best bet would be to look at a HELOC (Home Equity Line of Credit) to pay off your second mortgage which would be priced at the Prime Rate plus or minus up to one percent and would have minimal or no closing costs. If it makes you feel better though, you are still not in a bad loan structure considering the blended rate that you currently have of 6.05% (5.25*.8 + 9.25*.2) which is not currently available for 80% financing let alone 100%. Also, you should be looking at a worst case blended rate of around 6.65% based of what I am assuming is a 6% lifetime cap on your second mortgage adjustments.

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