Mary talks about closing cost estimates, and about the things you should know if you are shopping for a home or refinancing your mortgage.
Mary shows you what to be watching out for when shopping for a mortgage, and how to compare loan estimates by comparing the fees. The lender giving you the estimate will know the lender fees, but the other fees are only estimates (origination fee, underwriting, credit report, etc.) of service provided by other parties. So when you’re comparing loan estimates, you want to compare the rate and the fees associated with that rate from that lender.
Hello, I’m Mary Catchur. I’m the owner of Marimark Mortgage.
Estimating Closing Costs
One of the questions that I get asked a lot is about closing costs, and how do you estimate the amount of closing costs you should expect on your loan.
A lot of people are looking for a percentage, maybe, that they can apply to the purchase price of the loan amount. I don’t usually suggest that you use any type of standard percentage because many of the closing costs really don’t vary with the amount of loan or purchase price, a lot of them are fixed.
So today, I want to talk a little bit about the different categories of closing costs you should expect to see on your closing statement or on your preliminary estimate from the lender.
Categories of Closing Costs
There’s several different categories.
The first one is going to be your lender fees. These could be a loan origination fee, an underwriting fee, you might see credit reporting fees in that category. Many of these are not at all based on the loan amount or the purchase price, the origination fee, maybe, if there is an origination fee. But a standard underwriting fee is usually just a set amount as well as the credit report.
Then beyond that, you have title fees. There’s several components of the title fees. You will see probably like a title company closing fee, and then you’re going to see your owner’s and lender’s title policy fees. A lot of title companies are going to have one flat fee for closing, and that might encompass the lien search, the abstract, and other things. Whereas other title companies you might see those all detailed out in separate line items. But they should be fairly consistent among the various title companies.
One of the other things to think about is, in different areas, some of the title fees are not actually paid by the buyer, they may be paid by the seller. In particular, in Florida, the Florida Purchase Contract will delineate who is actually paying for these costs. In many cases, in particular in different counties within Florida, they’re designated that the seller will be the one to choose the title company, and in turn, the seller will pay the owner’s title policy. You want to look at your contract, first of all, and see if it designates who’s selecting the title company and who’s paying for those fees. The owner’s title policy is based on the purchase price of the home, so that is one that is a variable item.
The owner’s policy is not required by the lender, it is considered optional. But in many cases, as I said, the seller may be paying for it, so you’ll probably get an owner’s policy. The one that the lender requires is the lender’s title policy. This is also based on the loan amount and varies, again, by state. Each state will have their own formula for how much you’ll pay for this lender’s title policy. Often, there’s a discount on the title policy as well when an owner’s policy is being issued at the same time. Also, when you’re doing a refinance, if you can supply the owner’s policy that you got when you purchased a home, you will also get a discount at that time on reissuing the title policy for the lender. You definitely want to make sure when you buy a home, that you keep that owner’s title policy handy in the event that you refinance later on, you’ll want to present it and make sure you get that discount.
The next main category of these is state transfer taxes. And of course, again, these are going to vary by state, but they’re generally recording fees for recording the mortgage and deed documents. And then states will have their own formulas for fees such as intangible taxes, doc stamps on the deed, doc stamps on the mortgage. Every state will have their own category. Those are some that are specifically related to Florida that you will often see.
Those are the main categories of fees.
In addition to that, you’re going to have another whole category of fees that are refer to as prepaids and escrows. If you’re going to be escrowing taxes and insurance, when you close on a purchase, you will generally have to put aside three months of your taxes and three months of insurance. Also, on a purchase, you’re going to pay for your homeowner’s insurance policy upfront for the full year, so that ends up being about 15 months total for your escrows, and that is considered a prepaid item.
You also might have prepaid interest. If you’re closing in the middle of a month, you’re going to have to pay the interest from the date you closed to the end of that month on your new loan. In many states, you also may be required to get a survey, and that’s another fee that you should expect to see on your loan estimate.
Comparing Loan Estimates, and Shopping for a Mortgage
The main thing to keep in mind when comparing loan estimates if you’re shopping with several different lenders is remember that of all the topics we just discussed, the only fees that that lender is actually responsible for are their own category of lender fees. Things like the origination fee, the underwriting, the credit report, all of the other items are merely just estimates, and they’re provided by parties that are not necessarily selected by that lender and they have no control over. So when you’re comparing loan estimates, you really want to be just comparing the rate and the fees associated with that rate from that lender.
If you’re looking to purchase a home or refinance your existing mortgage, and have questions on closing costs, feel free to visit us at MarimarkMortgage.com, or give us a call at 866-910-8020.