The home-buying process can be fun, exhilarating and sometimes stressful—and that’s just searching for the perfect home. The loan process is a whole different process that can seem like a foreign language. Most buyers just want to know what fees and costs are associated with their new home purchase or refinance. The fees shown on the Good Faith Estimate can be difficult to understand but can be broken down into five sections. Here’s how you can explain it to your buyers:
1. Non-Recurring Costs Associated With the Lender
Loan origination fee, loan discount, appraisal fee, credit report, lender’s inspection fee, mortgage broker fee, tax service fee, flood certification fee, flood monitoring, etc.
2. Lender Fees
May vary widely between lenders and are not dependent on the cost of the loan.
– Document preparation, underwriting fee, administration fee, appraisal review fee, warehousing fee
3. Items to Be Paid at Close of Escrow
– Prepaid interests, homeowners insurance, VA funding fee, up-front mortgage insurance premium (UFMIP), mortgage insurance
VA funding fees and UFMIP are typically wrapped into the full loan balance.
4. Deposited Reserves
Funds in an impound account are your funds that the lender uses to make the payments on your bills as they come due.
When paying minimum payments, or your loan-to-value is higher than 80%, lenders may require impound escrow accounts that hold money for homeowners insurance impounds, property tax impounds, mortgage insurance impounds, etc.
5. Non-Recurring Costs Not Associated With the Lender
– Closing/escrow/settlement fee, title insurance, notary fee, recording fee, pest inspection, home inspection, home warranty
It has become common practice in some markets to ask the seller to pay some or all of the closing costs when you purchase a home. Some simple rules to remember on the different kinds of loans:
– On VA loans, you can ask the seller to pay everything, meaning the buyer is making no down payment and paying no closing costs.
– On FHA loans, the seller can pay almost any cost, but the buyer has to have a minimum 3% investment in the home/closing costs.
– Some refinance rates include the closing costs and prepaids in the new loan amount, requiring little to no out-of-pocket expenses to close the deal.
For more information on closing costs, loans and refinancing, visit REeBroker Group Loans. For borrower assistance, see REeBroker Group Pre-Approval. We are experienced with MLOs who are brand-new and/or have been in the industry for years! We are here for you and your clients.
Real Estate eBroker Inc (DBA REeBroker Group) is an Equal Opportunity Lender and an Equal Housing Lender. NMLS #297152 DRE #01522411
Some food for thought…. Although mortgage rates are low and lenders have some very creative options for home loans, it is an excellent idea to learn what those fees on a Good Faith Estimate/Closing fees represent, before closing the transaction.