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  The Loan Process

   

 Anticipate total costs
At the start of the home buying process and particularly at closing (the meeting where you'll sign the paperwork and pay all the expenses to take ownership of your new home), you'll find yourself paying various fees and other charges.

Some of these costs are negotiable with the seller. Your real estate agent can help you negotiate these in the sales contract.

This section discusses the costs you most likely will be responsible for so you can have the funds ready. (See our Closing Cost Estimator for a quote on your loan's approximate costs.)

Lender-related costs
Third-party fees
Pre-paid costs

  
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      Lender-related costs
The cost of a loan is more than rates and points. Prior to selecting a lender for a specific loan, you should ask what other fees there will be in addition to the points. Within 3 days of application, you'll be mailed what's called a Good Faith Estimate of what the loan will cost. And this is just what the name says. It's an estimate. And, in "good faith," it's as accurate as possible given the information available at the start of the loan process.

You'll receive an initial Truth-in-Lending disclosure which includes the APR and other financial terms within 3 days of application. A HUD-1 Settlement Statement will be issued to you shortly prior to closing that provides you with the full disclosure of closing costs. It establishes the total funds you must bring to the closing meeting and itemizes how and to whom the funds are to be disbursed.
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Third Party Fees
Third-party fees are collected by your lender for services provided by outside parties, such as an appraiser. All lenders typically require some of these fees. Many of the services are regulated by various governmental organizations.
     
Appraisal Fee
Payment for an opinion or estimate of the value of a property. A report is prepared by a professional appraiser to explain the determination of the fair market value. This fee is often paid for at the time of application for a home loan.
Credit Report Fee
Covers the cost of the credit report used to help determine your creditworthiness. These reports are obtained from credit agencies and evaluate your capacity to pay debts or history of paying debts. This fee is often paid for at the time of application for a home loan.
Mortgage Insurance
Payment for an insurance policy that protects the lender against loss should you fail to make payments. This type of insurance is typically required on loans with less than a 20% down payment. These costs may be paid upfront, included in your monthly payment, or included in your interest rate.
Tax Service
Fee covering the cost of having a tax service agency monitor the payment of your property taxes. If you elect to pay taxes yourself, the agency monitors the tax rolls for the life of the loan and informs the lender if the taxes ever become delinquent so the lender can take action to protect its lien position.
Flood Check Fee
Covers the Federal Emergency Management Agency's (FEMA) review to determine if a home is located in a flood zone and if flood insurance is required.
Closing/Escrow/
Attorney Fee
Pays for the services of the closing or escrow agent, or the attorney that handles all the financial transfers and payments associated with the closing of your refinance loan.
Abstract or Title Search
Pays for a written history of the title transactions involving the parcel of land where a home is located, including everything recorded in the public record. The search checks for liens, unpaid claims, restrictions or other problems.
Title Insurance
The premium for title insurance, which protects you and the lender in case of an unresolved claim affecting the marketable title to the property. There are two policies issued, an owner's policy for you and a lender's policy for the lender. Special title binders and endorsements may also be included in this charge.
Homeowner/Hazard Insurance
The premium for a form of insurance policy required to protect against certain risks, such as fires or storms. A regular payment for this insurance can be included in your monthly home loan payment through an escrow or impound account. The cost of the first year's policy is generally paid at closing.
City/County/
State Tax/Stamp
Some states have taxes related to the real estate transaction. These taxes range from a few dollars to 1 3/4 percent of the loan amount depending on the jurisdiction. Current states charging mortgage tax include Alabama, Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma, Tennessee and Virginia.
Recording Fees and Transfer Taxes
Recording fees and transfer taxes are charged by most states and localities for recording the purchase documents and any liens in the public record and transferring ownership of the property.
Notary Fee
Covers the cost of having a licensed notary public certify the signing of your closing documents and signature.
Survey Fee
A fee for the certification of the location of the property, its dimensions, its boundaries, its contour, and the location and dimensions of any improvements. In some cases, the lender can use the original survey done for the purchase of the property.
Inspection Fees
Charges for the various inspections that may be required for the sale, such as property, pest and septic tank inspections.

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Pre-paid costs
When you purchase a home, there will be some necessary charges to cover things like the interest on your loan until your first payment is due. These are called "pre-paids" and include the following items.
       
Pre-paid Interest
When you buy a home, you typically don't make the first payment until the beginning of the second full month after your loan closes. For example, if you close on January 28, your first payment may not be due until March 1. However, you pay at closing for the interest on your new loan from the day of closing until February 1.
Escrow Accounts
Escrow or "impound" accounts (also called reserves) are required if your lender will be paying your homeowner's insurance and property taxes. Your lender sets up the escrow account by collecting 2 to 4 months worth of the annual cost of your homeowner's insurance and 2 to 4 months worth of your yearly property taxes and any other items covered by your escrow account. At closing, you'll be required to pay these amounts to fund the account.
Property Taxes
Property taxes for real estate must be paid quarterly, semi-annually, or annually to the local government. Property taxes are the most common expense prorated (shared or split) between the buyer and seller. Your closing agent will typically determine your portion of the taxes from the date of closing. This varies by state.

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