April Hsiung

Phone
(909) 278-8877
Fax
(949) 313-2991

Coldwell Banker Top Team
15348 Central Avenue
Chino, CA 91710

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Closing Costs for Buyers

Buyer's Closing Cost

Buyer's closing cost is usally about 3%  to 5% of the purchase price...however, every transaction will all vary...closing cost on refinancing  would be a bit different from purchase,...on top of that,  different type of loan, different interest rates, whether or not you have a impound or escrow account (that is when you choose to pay your property and tax monthly with the mortgage payment),  which insurance company you choose to use, your loan amount, and also the day and the month that you close escrow can also make your total closing cost higher or lower.

The best way to understand this, is to ask your loan officer to give you an estimate closing cost and ask them questions. Do remember, before you actually close escrow, you will only get an estimate of your total closing cost...do expect that because some of the numbers can change by the time you actually close escrow.

If you are purchasing a home, your loan officer will tell you about how much closing cost you might need to prepare to bring when you sign loan docs.

Normally, when you sign your final loan docs, escrow will ask you to bring in a casheir 's check in the amount of your downpayment and your closing cost. Do remember, even at this time, this amount is still a estimate. In fact, they will probably ask you to bring a little more than what they estimated, just in case the final numbers is a little more than what they have expected--such as the closing date is delayed for a few days...or you happen to be closing on the beginning of the month which will make your prepaid interest amount higher and make the final number higher.

So, ask the loan officer to give you an estimate, when you are prequalified for home mortage. Ask for another estimate right after you actually go into escrow, because a lot of things can change by the time you go into escrow. For instance, there might be changes to the rates, terms, types of loans might be changed for expected reasons such as the property you found is not FHA approved while you were originally going for a FHA loan...the home you choose maybe in communities that has Mello Roos or HOA fee...community transfer fee may vary...depending if the property is a REO, short sale, or regular sale, the closing cost for buyer may vary a little bit more...

These are the main items of cost that will appear on your closing cost estimate:

1) non-recurring closing costs

2) points

3) recurring closing costs

4) fees associated only with purchase transactions

1) Non-recurring closing costs

Lenders Title Insurance - whether you are purchasing or refinancing your existing loan the lender will require a policy of title insurance. This gives them a guarantee (by the title insurance company) as to what liens are associated with the property the day the loan funds. If they miss something, it's their problem.

Escrow (or attorney's) fee - an escrow company performs, essentially, two functions: getting the paperwork together for you to sign and managing the escrow funds. They get all the money from everyone who has to put money in and they dispense it to whomever needs to be paid.

Appraisal Fee - this goes to the appraiser. Often it is paid at the time of inspection. Otherwise it is collected at escrow.

Appraisal Review Fee - If the appraiser is not on the list of approved appraisers for the lender or if the value seems, shall we say, a bit creative, or if it is a large loan the lender will request that another appraiser "review" the appraisal. This may be a desk review (just going over the paperwork and the databases) or a field review (going out and taking a look at the property).

Brokers origination fee - this is a number that varies widely. In some state a common practice is for the broker to charge a 1% "origination fee". Some brokers require an "up front" non-refundable deposit.

Lender's Fees - these vary over a wide range and are sometimes divided into 2 or 3 pieces. This is what the lender is charging to underwrite your file, print the documents and fund the loan. This varies from a low of $300 to as high as $850.

Flood Certification - every little bit of the old USA is divided into FEMA flood zones. This specifies how susceptible the lot is to flooding. If it is in a flood zone you need flood insurance. The Flood Certification is an assurance to the lender as to what the flood zone classification is. The Flood Certification is not flood insurance, it is a guarantee (in most cases) that flood insurance is not needed.

Tax Service Fee - this goes to a data processing entity which assumes the responsibility of informing your lender if you become delinquent in your property taxes.

Credit Report - this is what the broker and/or lender pay to get your credit report. The credit reports used in the mortgage industry are called RMCR's and cost about $50.

Statement Fee - If this is a refinance, your old lender may charge as much as $60 for providing the payoff information to the escrow agent. For the work done, this little fee is the biggest "burn" in the whole industry.

Reconveyance Fee - charged by your old lender in the case of a refinancing. This is the cost of generating and recording the Deed of Reconveyance, a public record that your old loan is paid off.

Notary and Recording Fees - someone is going to charge you to notarize certain of the loan documents and the Country Recorder is going to charge the escrow company for recording them.

Other Stuff - this is not too elegant but I always allow another $150 estimate for things such as courier fees, Overnight Delivery and wire transfer of the loan funds.

Taxes on Loans - some states (e.g. Florida, have taxes even on refinance transactions). This may make refinancing a lot less attractive in these places.

2) Points

This is a one-time fee that you can spend to bring your interest rate down over the life of the loan. This is a "you pay me now or you pay me later proposition". I suggest that you calculate the "recovery time" for the extra expense and decide if it is worth it. For relocation situations, your employer may be paying this. Shut up and let them do so.

3) Recurring closing costs

This is the stuff that you have to pay anyway but will pay early because of the timing of your loan. This is one area that you must pay attention to when refinancing because 1) people's quotes may not be consistent and 2) if you do not make allowances you may not have enough money to close.

Recurring closing costs consist of:

a ) prepaid interest. Take a time out and remember this: mortgage interest is paid in arrears. That is, when you are making your December payment, it is for the use of the money for November. If your loan is funding on December 15 and the first payment date is February 1, then you must pay interest on the new loan from December 15 to December 31. Thus, the expression "prepaid interest". If you are refinancing you must pay interest on the old loan until the day that the old lender receives the funds. This usually has the effect of creating an "overlap" of at least 2 days during which you are paying interest to both lenders. The mitigate this we, as a practice, avoid funding loans on Friday's. Otherwise, you must pay at least 4 days "overlapping interest".

An exception to this is VA loans. Here, one must pay interest for the entire month in which the loan funds.

b) Property Taxes - this is a matter of timing. In California one's property taxes are due in 2 installments. The 1st is delinquent on December 10. If you are refinancing in October and the first payment date on your loan is not until December than you can be delinquent on your taxes before your first payment is due. Bottom line is this: if you have not made your 1st installment and the 1^st payment date is in December or later that you must pay your first installment at escrow. If it is getting close to that date, your loan officer and the escrow company must coordinate to make sure that the payment is made and made only once. Every year there is at least one borrower who says: "Well, I put my check in the mail to the tax collector". This is not going to work. The escrow officer must be able to verify that the tax collector has received and posted the payment.

c) Insurance - when you loan is funding your lender may require that 6 months or one year of "fire" insurance be in place. This is important in the case of refinancing when you have, say, 3 months left on your policy. You will have to plan on paying another half year at least.

This must be coordinated between the escrow officer and your insurance agent or broker.

If your property is a condo and insurance is paid thru the homeowners association then this is not relevant.

d) Impounds - Private Mortgage Insurance may require these. If you are refinancing near the time when your tax payment is due (the discussion above) this is another pain in the neck. Your old lender may have all or most of your tax payment impounded but will be unwilling to part with it before they are paid off. Thus, you have to pay for one installment of your taxes and will be refunded the impound from your old lender.

Apart from this detail, impounds consist of a certain number of months of PMI, taxes and insurance.

4) Fees associated with purchase transactions

These include: a) an owners title insurance policy. This you will keep as long as you own the property. If you refinance, you will not need a new owner's policy but you will need a new lender's policy. This is often paid by the seller.

b) inspections - termite, roof, septic (for rural property), surveys and heaven knows what else.

c) Transfer Fees - these are charged by the county and municipalities, vary greatly and are most often paid by the seller.

d) Prorations - the seller may have prepaid part of the property tax for the period during which you own the home and will be entitled to a reimbursement from you.

I know it's still very confusing, if you have any questions, please contact me and I will sit down with you to go over this.

Happy house hunting!!

First Time Buyer? Start Here!

 

 

EXAMPLE OF BUYER'S CLOSING COST -EXAMPLE ONLY

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LOAN DETAILS:
Sales Price:			$450,000.00		Loan Term Mos:			360
Est. Down Payment:			$15,750.00		Type:			FHA
Base Mortgage Amount:			$434,250.00		LTV/CLTV			96.50%
Mortgage Amount with MI/MIP/VAFF:			$440,000.00		Origination %:			1
Interest Rate %:			5		Discount %:			1
APR %:			5.398		Loan Program ID:			FHA
								30 Day Lock
ESTIMATE OF COSTS ASSOCIATED WITH CLOSING:
Title Costs - First American			$3,000.00		Credit Report			$35.00
Escrow - First American			$275.00		Tax Service			$80.00
Full Appraisal - Third Party Fee			$425.00		Flood Dertermination			$26.00
Processing - Lender	Countrywide		$695.00
Underwriting - Countrywide	Countrywide		$395.00
TOTAL CLOSING COSTS (Borrower):								$4,931.00
TOTAL CLOSING COSTS (Seller/Other):								$0.00
ESTIMATED PREPAID EXPENSES:
Taxes			6 months		0 Mo.			$3,528.00
Hazard Insurance			4 months		$0.00 Mo.			$200.00
Hazard Insurance - 1st Year								$600.00
Flood Insurance			0 months		$0.00 Mo.			$0.00
Flood Insurance - 1st Year								$0.00
MI/MIP			0 months		$0.00 Mo.			$300.00
Interest for			15	days @	$50.00			$750.00
TOTAL PREPAID EXPENSES:								$5,378.00
ESTIMATED MONTHLY PAYMENTS:					TOTAL CASH TO CLOSE:
Payment			$1,500.00		Total Closing Costs			$4,931.00
Taxes			$588.00		Total Prepaid Expenses			$5,378.00
Homeowner's Insurance			$50.00		Down Payment			$15,750.00
Flood Insurance			$0.00		Countrywide Pays			$0.00
Other			$0.00		Seller Pays			$0.00
MI/MIP			$300.00		Borrower Credits (Homesafe escrow)			-$3,000.00
Homeowner's Assoc. Dues			$120.00		Disbursements - Builder			$3,000.00
					Prorations - Builder			$1,000.00
					Discount Points			$4,500.00
TOTAL PAYMENT:			$2,558.00		CASH TO/FROM BORROWER			$31,559.00

 

(This is an example only...closing cost will vary depending on the type of loan, community, type of properties and many other factors.)