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Thank you for visiting this page.
I
hope you find it helpful. It contains excerpts of a column I wrote in the
Washington Times Home Guide which was published on October 24, 1997. I describe
the most typical closing cost items and what services they pay for. Hopefully
this will give you, the consumer, a better insight as to the process of buying a
house and obtaining a mortgage. Happy Mortgage Shopping!
Wm. Henry Savage
President
PMC Mortgage Corporation
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Points or Discount Points: One point is
equal to one percent of the loan amount. The lower the interest rate, the
higher the points. So if you don't have the money or if you're not prepared
to pay points, opting for a little higher interest rate to avoid points
isn't a bad idea.
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Origination Fees: An origination fee is
typically also equal to one percent of the loan amount. Some lenders will
give you a "no points" interest rate quote but omit the fact that there's an
origination fee of one percent charged. Make
sure you are quoted ALL points and origination fees!
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Appraisal: The lender requires that you pay
for a professional appraisal on the property before giving you the loan. An
appraisal ensures that the collateral for the loan has sufficient value.
The lender will arrange for the appraisal to be done and you are entitled to
a copy. An appraisal usually costs about $300.
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Credit Report: The lender obtains a detailed
credit report on the borrower to ensure that he or she has a good credit
history. A credit report usually costs about $55.
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Underwriting/ Document Preparation Fees:
Most lenders will charge certain fees in addition to points. I've seen fees
with lots of creative names such as underwriting fee, doc prep fee,
commitment fee, funding fee, etc. The bottom line is not what they're
called, but how much they are. They usually total about $300-$400.
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Flood Certification Fee:
Depending upon the location of the property, the lender will sometimes order
an outside company to certify that the property isn't in a flood zone. The
cost for this certification is usually between $14 and $25.
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Tax
Service Fee: The tax service fee is charged
by the lender and goes to an outside company which handles the payment of
your real estate taxes. It usually costs about $65.
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Processing Fees: This fee pays for the
services of getting the loan processed and ready for underwriting. This fee
can range from zero to $500.
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Title Insurance: This is a one time fee
which is paid to ensure the property has clean title. Title insurance
protects the owner against any claims to the property. Lenders always
require title insurance to protect them. Owner's title insurance protects
the buyer and is optional. The cost of both policies depends upon your
purchase price and can run in the range of $300 to $1,000.
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Recording Fees/Transfer Taxes: This is what
the city, county and state take on the transaction. depending upon where
you live and whether or not you are purchasing a home or refinancing your
existing home, the fees can vary greatly.
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Attorney/Settlement
Fee: This is the cost of the attorney or
settlement agent. These folks sit down with you and go over the the closing
papers such as the settlement statement and promissory note. The total fees
typically run between $175 and $400.
In
addition to the closing costs described above, there are two other items to
consider. They are:
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Prepaid Interest: The lender will require
that you pay the daily interest from your settlement date until the end of
the month. Your first mortgage payment will be due on the end of the
following month. In contract to the way rent is paid, which is in advance
of every month, mortgage payments are due in arrears. That is, your
mortgage payment covers the interest for the previous month.
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Escrow Account: Most lenders will require
that you set up an escrow account with them in order to pay the real estate
taxes and hazard insurance premiums. Once you set up the escrow account,
part of your mortgage payment goes in to this account and the lender pays
the taxes and insurance on your behalf.
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