CLOSING COSTS UNCOVERED

“I investigated several other

sources and got the best

rates and closing costs at

Affinity.”

- Dennis from FL

Which Closing Costs to Question?

Origination Fees

Discount Fees

Excessive

Administrative or

Underwriting Fees

Excessive Title Fees

Ask your loan officer to explain all closing costs line by line.

Save Hundreds of Dollars at Closing by Better Understanding Closing Costs! By Michael Baker, Sr. Loan Officer at Affinity Mortgage

The number one question we receive from our clients is: What are these

closing costs?

Adding to the confusion of closing costs is that from lender to lender and

title company to title company different terms can be used.

In this eBook I will uncover standard closing costs, explaining each one.

We’ll also discuss which costs to be leery of, to look out for, and which

ones to avoid all together (look for these in BOLD and RED).

Not every Loan Officer and Lender are “out to get you” but many are still

working under old and antiquated ways of originating loans. This leads to

old and antiquated closing costs that many times you just should not be

paying for.

Let’s dig in...

Administrative Fee or Underwriting Fee

It is typical for a bank or mortgage lender to charge a fee for

the work they do in underwriting the file. Your first thought

probably is “Hey wait a second! You’re about to get 4% a

month in interest from me, and you want to charge me an

additional fee to just underwrite the file!?” You’d be right to

think that way, but many times banks or mortgage lenders will

underwrite many files that never get to the closing table.

Those files still require resources, underwriters and

processors, working on these files and when loans don’t close

from time to time those costs can add up quickly.

Administrative fees can vary from lender to lender. We

typically see them from anywhere around $0 (for many

Veteran’s and VA loans) upwards of $995. Where things can

get tricky is from time to time you will see lenders advertising

NO FEE’s options, but as we all know, nothing in life is truly

FREE. Many times when lenders say they have $0 in fees

you see that come full circle in a higher interest rate. You

have to do the math in these scenarios… is it better for me to

pay a $0 Admin Fee and take a .25% higher interest rate? Or

vice-a-versa. The Admin Fee is generally one paid at closing

and you shouldn’t pay this fee unless your loan closes (at

least that’s how it works at my company, and I would question

ANY other company that is trying to charge this to you up

front).

Appraisal Fee

Most home loans, purchase or

refinance, are going to require an

appraisal. The bank lending you the

money is going to want to make sure

that they aren’t over lending you money

and the easiest way for them to find this

out is via an appraisal. These generally

run between $400 and $600 depending

on the type of loan and type of property

you are purchasing or refinancing. The

appraisal fee is generally an item you

pay for up front, since the appraiser

does is work prior to your loan being

closed.

Tax Service Fee

For loans that have their insurance and

taxes escrowed (or impounded –

meaning rolled monthly into your

mortgage payment) there is a Tax

Service Fee. This is a one time fee

charged at closing. The fee goes to the

mortgage servicer who will handle the

monthly collection of your tax payment

and subsequent paying out of your tax

bill throughout the year when the bill is

due.

Discount Points

Discount Points should be a huge RED FLAG when it comes to

closing costs.

Discount points are figured as a percentage of your loan amount.

These can be used for good or evil, let me explain. Generally when

you are charged Discount Points you are doing this to “buy down”

your interest rate lower. Let me give you an example, let’s say that

today based on your merits alone (credit score, down payment, the

type of loan you are doing, etc) that the “par” interest rate (or the rate

you get WITHOUT paying any points) is 3.25%. Then the loan officer

gives you a Discount Points option whereby you can get a 3.00% rate

by paying 2 discount points (or 2% of your loan amount).

This is where math (specifically Return on Investment or ROI) comes

into play. If you have a $250,000 loan amount then 2% in discount

points would cost you an additional $5,000 fee to lower that rate from

3.25% to 3.00%. On a 30 year fixed loan option this amounts to an

interest savings of $34.01 a month. Calculating the ROI (Return on

Investment) we see that it takes you 147 months, or 12 years and 3

months to recoup your $5,000 investment to “buy down” the rate.

Given that this is a 30 year mortgage you might think that’s a “pretty

good deal”. However, we generally counsel clients that you want to

see yourself recoup those costs in 7 years or less. The reason for

this is the average person is only in their current mortgage for 7

years. Even if this is your “forever home” there is a good chance that

over time you will refinance to take cash out of the equity in your

home to say remodel your kitchen. Or perhaps you will refinance into

a lower term, etc. So do the math and be leery of any points options

that take longer than 7 years to return your investment of the added

costs of the points option.

Flood Certification Fee

Every home, whether it be on a

mountain top or in a valley next to a

river, is going to require that a flood

certification be done to find out if the

home resides in a flood zone. If your

home is in a flood zone it generally

requires specific flood insurance on top

of your standard home insurance and a

lender needs to know this up front. This

fee is usually $5-15 and is an item that

is billed at closing.

Government Recording

Fee

These fees will vary greatly from county

to county and state to state. Please

check with your loan officer. The two

typical fees we see are city/county/state

mortgage tax stamps and recording

fees. These fees are billed at closing

and not something you pay for up front.

Origination Fee

Origination fee is another RED FLAG when it comes to closing

costs.

The origination fee is generally a percentage of your loan

amount. Years ago it was typical for a lender to charge 1%

origination fee as their fee for originating the loan for you.

Things changed over the years though and now most lenders

get paid on the back end of your loan a percentage of your loan

amount after your loan closes. When I see lenders charging

origination fees up front I say run for the hills. Now days the

only thing an origination fee is good for is lining the pockets of a

greedy loan officer. It is just added profit that goes straight to

the bottom line of a lender.

Credit Report Fee

A lender is going to pull your credit and ultimately this is a

charge that is passed on to the borrower. For me and my

company this is a charge that we bill to closing. Meaning that if

your loan doesn’t close for whatever reason you don’t get

charged for the credit report. However, this is a fee that is

allowed to be charged to the borrower up front. These credit

report fees can be as low as $15 and go up to $100 or more

sometimes depending on if your specific credit report has

additional items that are needed on top of the standard credit

report itself (as determined by your underwriter).

Funding Fee

Some loans like VA and FHA loans

require an upfront funding fee. This is a

percentage amount of your loan and

can vary from as little as .5% to as high

as 3.3% of your loan amount.

Disabled Veterans get the funding fee

waived on a VA Loan.

This is a fee put in place by the

government to help fund the types of

associated loan programs. These

funding fees are not generally paid up

front nor at closing, they are actually

instead rolled into the loan amount

itself.

For instance if you have a $200,000

loan amount and a .5% funding fee

($1,000) then you end up with a loan

amount of $201,000. In this case the

funding fee is simply financed into the

loan amount.

Title Fees

Any time a home is purchased or refinanced we must engage a

title or escrow company. They review all title work, deed, and

abstract and make sure that the home is properly free of any

encumbrances (liens, encroachments, and easements).

A title company is generally going to charge the following fees;

Closing or Escrow Fee, Lenders Title Insurance, Owner’s Title

Insurance, Attorney Fee, Notary Fee, Abstract Fee… and

sometimes more. It is impossible for me to list each and every

fee as title companies can vary their fees based on their

specific business models, and then from county to county, state

to state, these fees can vary even more.

Two things to note:

1. Many/most title companies have a “title fee calculator” on

their website. This can be a great resource to get an idea of

what to expect.

2. More importantly would be to check with your loan officer.

Many times we have special pricing set up with title companies,

pricing that is better than you could get if you contacted the title

company directly.

Ask your loan officer and they will provide the title company

fees for you. These are items that are paid at closing, but be

careful to check with the title company you use, as some title

companies will bill you for title fees even if your loan doesn’t

close.

Escrow Reserves

While these are not technically “fees”

they are still “costs” that you must incur

at closing.

It is typical to put at least 2 months of

your taxes and home owner’s insurance

into your escrow account up front. Over

time your home owner’s insurance and

tax bills will more than likely rise. A

mortgage servicer likes to be prepared

for this by having a couple of extra

months of your insurance and tax bills

set aside so as to not shock you when

these amounts change.

Depending on what month of the year

you close however, more than just two

months may need to be collected

depending on what month your loan

closes.

Along with a couple months of taxes

and insurance reserves, if this is a

purchase, you can expect to have one

full year of your home owner’s

insurance premium collected as well at

closing.

Please Note...

These fees above are not all inclusive. There could be

additional fees needing to be collected on your loan depending

on different circumstances, loan types, additional title items that

arise or perhaps different government recording fees based on

your specific city/county/state.

Please remember that different lenders can call these fees/

costs by different names. The key is to get a “Loan

Estimate” (use this phrase specifically) up front from any

lenders you are shopping and then compare notes with all the

lenders you are shopping.

You can always feel free to send me the Loan Estimate of any

lender and I am happy to match them up apples to apples to

make sure you aren’t paying for a needless and pointless junk

fee!

Homes these days are already super expensive, don’t overpay

for your loan costs.

Thank you!

Contact Info

Michael Baker

Sr. Mortgage Loan Officer

Affinity Mortgage, LLC

8725 Rosehill Rd.

Ste. 109

Lenexa, KS 66215

(913) 735-5363 (call or text)

mbaker@affinityhomeloan.com

Facebook.com/bakerloans

Twitter: @affinityloans