Section A of the Loan Estimate (Loan Cost, or Origination charges):
Lenders have various costs associated with processing and funding your loan. These costs are defrayed by charging various administrative fees.
Application Fee – A fee charged to defray the costs associated with processing your mortgage
Underwriting Fee – A fee charged to defray the costs associated with processing your mortgage
Commitment Fee – A fee charged to defray the costs associated with processing your mortgage
Discount Points – Fee paid to reduce your interest rate. One point equals 1% of your loan amount (exp. $100,000 loan – 1 point equals $1,000).
Rate lock fee – An upfront fee to guarantee/lock your interest rate before closing.
Section B. of the Loan Estimate (third party charges):
Credit report fee – the cost of pulling your credit report from the 3 credit reporting agencies
Appraisal – Report to determine the value of your property. Your lender will order this service through a third party, called an “appraisal management company”
Upfront Mortgage Insurance – Some mortgage programs (FHA, VA, USDA) charge an upfront premium to insure your lender against default. These fees are typically financed into the mortgage and not paid by you in cash at closing.
Flood Determination – third party charge to document if your property is in a flood zone.
Flood Monitoring – Third party charge to monitor future flood zone mapping changes
Tax monitoring fee and tax status research fee – A service provider that monitors when real estate tax payments are due.
Section C. of the Loan Estimate (additional third party charges):
Title search – Researching the title to your property to determine any outstanding liens
Lender’s title insurance – Insures against any defects, fraud, or other issues that jeopardizes your lender’s lien (only paid once – and insurance is in place for the life of the loan)
Courier – Typically charged by the escrow company or closing attorney to express mail your signed closing package to the lender, or dispersing pay off checks to various parties.
Survey – Documents property boundary lines, easements, buildings, and other encroachment on the property.
Survey Deletion – In some states the title insurance carrier will insure the property meets all zoning requirements. You will pay this fee rather than purchasing a survey.
Settlement Agent Fee – Fee to the attorney or escrow company to coordinate and review your title search, issue title insurance, prepare your closing documents with your lender, conduct the closing, record documents, and pay off any liens on the property to ensure clear title.
Pest Inspection – Paid to an inspector to determine if there is any active or past pest infestation. You must order this service directly with an inspection company and provide a copy to your lender. Not all mortgage programs require an inspection
Septic Inspection – Paid to an inspector to determine if the private sewage system is operating. You must order this service directly with an inspection company and provide a copy to your lender. Not all mortgage programs require an inspection
Well Inspection and water quality test – Paid to an inspector to determine water quality for private wells. You must order this service directly with an inspection company and provide a copy to your lender. Not all mortgage programs require an inspection
Home Inspection – This is not required by your lender, but most home buyers will pay a home inspector to thoroughly review the condition of the property, including structural integrity, heating system, electrical system, roof, and any general defects. Most inspectors will also perform the pest inspection upon request.
Section E. of the Loan Estimate (Other Costs):
Recording fees – Paid to the government registry of deeds to record your deed, and mortgage lien. Also, to discharge any liens on the property.
Transfer taxes – Taxes, or fees, paid to the town or state to sell or transfer title. This could be paid by either the buyer or seller depending upon what state you’re in.
Land Conservation Taxes – Charged by towns for land conservation efforts
Section F. of the Loan Estimate (Prepaids):
Hazard or homeowner’s insurance policy – On a purchase transaction, you will pay the first- year insurance in full at closing (you may be required to pay this a week or two before closing)
Prepaid Interest – Mortgage interest is paid in arrears, for example, a payment made on May 1 covers the interest charges from the month of April. Mortgage servicers want uniformity therefore, all mortgage payments are due on the first of the month. Prepaid interest is money you pay in advance to pay the interest charges for the remaining of the month in which you are closing. For example, if you close May 15, you will pay interest from the 15th through the 31st. Since you have paid up through May, your first payment is July, not June.
Section G. of the Loan Estimate (Initial Escrow Payments at closing):
These charges are paid to put your lender on schedule with when future payments are due for taxes, homeowner’s insurance, and mortgage insurance (if applicable). You may request paying these items separately, rather than have them included in your monthly mortgage payment. The lender can also have by law 1.5 x your monthly escrow charges in the account as a reserve for the future. This reserve is collected at closing and maintained throughout the life of your mortgage.
Homeowner’s Insurance – 2-3 months collected at closing and put into your escrow account so the lender will have the full year premium when policy renews after the first year.
Mortgage Insurance – Generally, mortgage insurance is required if you finance more than 80% of the purchase price. This Insures the lender for a portion of the loan balance if you default on your mortgage. The insurance is paid monthly to the mortgage insurance company. The lender will collect 1-2 months which is credited to your escrow account.
Property Taxes: The lender will collect the month’s taxes due along with 1-2 months allocated for reserves in your escrow account.
Section H. (other fees):
Owner’s title insurance – This is not required by your lender. Owner’s title insurance protects you in the event of fraud or other defects on the title to your home. The policy is purchased in conjunction with the Lender’s title insurance. It is only paid once and your insurance is in place for life.
Our Loan Estimate report will review each of these fees and show you if your charges are in-line with industry standards in your market. We’ll provide a line by line analysis of each fee and total any amounts you might be overcharged. We’ll also tell you which fees are negotiable, and most importantly, how to negotiate those fees.