Closing Cost

Understanding Closing Cost

Mortgage closing costs can be grouped into 5 categories. Lender Fees, Title Fees, Government Fees, Third-Party Fees, and Pre-paid Items.

Lender Fees:
  • Origination Fee – A fee charged by a lender/broker as compensation for providing you with a mortgage loan.
  • Discount Fee – “Points” you can pay to buy down an interest rate. The more points you pay, the lower the interest rate.
  • Application Fee – Lenders/Brokers may charge this fee up front to offset the cost of processing your loan.
  • Processing Fee – A fee to cover the costs to process your loan.
  • Underwriting Fee – A lender/broker fee charged to determine if the lender is willing to lend you money based on your application for a mortgage.
  • Administrative Fee – Similar to the Processing Fee, this is a fee to cover the expenses of processing your loan.
  • Document Preparation Fee – A fee to prepare your specific loan documents to be signed at closing.
  • Courier Fee – This fee may or may not be charged by a lender/broker. It covers the cost of sending your loan documents to different parties.
  • Wire Transfer Fee – This fee may or may not be charged by a lender/broker. A wire transfer is the way lenders provide your loan funds to the closing agent for disbursement to various parties.

 

What is a Good Faith Estimate?

A GFE, also referred to as a good faith estimate, is a document that includes the breakdown of approximate payments due upon the closing of a mortgage loan. A GFE helps borrowers shop and compare costs of loans with lenders. You are not obligated to accept the loan just because you received a GFE. Smart mortgage shoppers apply for at least two loans and use the GFE’s to determine which lender to use.

Prior to October 3, 2015, the GFE was a required document that lenders had to give mortgage applicants within three days of the application to explain the terms and charges associated with the mortgage. On October 15, 2015, the GFE was replaced by the Loan Estimate and Closing Disclosure Form.

The GFE outlines all of the costs of your mortgage loan, including your loan amount, term, interest rate, whether there is a prepayment penalty, origination charge, and more. In the fees outlined in the GFE, some fees are paid by the buyer and some by the seller. The charges fall into these categories:

  • Loan fees
  • Fees to be paid in advance
  • Reserves or escrow paid to third parties
  • Title charges
  • Government charges
  • Additional charges

– Good Faith Estimate Source: Zillow (https://www.zillow.com/mortgage-learning/good-faith-estimate/)