You've found your dream home, have completed the mortgage approval process, and are reviewing the list of your closing costs.
Suddenly, you feel as though you are seeing some fees for the first time. Some services listed may sound odd. And there's a lot of mortgage language you may not understand.
By working with Stem Lending, we can help you understand all of these fees, and how to reduce or eliminate them.
Before we dive into specific Q&A, most of your mortgage closing costs can be broken down into 5 categories:
- Lender Fees
- Third-Party Fees
- Prepaid Fees
- Closing Date Changes (interest accrual)
- Escrow Account Pre-Funding (property taxes, insurance)
With respect to the five categories of closing costs, here are the important takeaways:
Lender fees encompass all items the lender utilizes in order to process, approve (or decline) and fund your mortgage loan. These include underwriting your application, recording your mortgage with the government, and any origination fees (see below for more detail on origination fees).
Third-party fees involve items related to actually processing your mortgage loan. Items like title insurance, mortgage insurance, flood certification, transfer taxes, and appraisals fall within third-party fees.
Pre-paid Fees relate to two items specifically that you must have pre-funded or prepaid prior to closing: (1) homeowners' insurance, and (2) interest accrual on your mortgage loan.
Closing Date Changes: the interest accrual is complicated, so we wanted to break it out within the broader context of your closing date. When you close on your mortgage, you are required to pay the accrued interest from the date you close through the end of that month. The CFPB describes interest accrual as “charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.” See here for more information.
Escrow Fees are the dollar amounts generally required by lenders when starting your new escrow account. These accounts are setup to pay your quarterly property taxes, and your monthly homeowners insurance. Not all lenders require you to escrow property taxes with them, but the benefits of doing so may include a lower interest rate plus the added benefit of centralizing all your home-related expenses into one simple payment.
Take a look below at three different potential scenarios that could happen to you as you evaluate mortgage costs (source: CFPB).
Even after reading through this short walk-through of fees you are likely to encounter at closing, you may still have questions.
Q: What is a Mortgage Loan Origination Fee?
A: Mortgage origination fee is an upfront fee charged by the lender for processing. It’s a percentage of the loan amount — often about 1 percent. An underwriting fee is charged by lenders to analyze a mortgage application, calculating the riskiness of the loan.
They are typically broken down into something called “mortgage points.” These points are expressed as a percentage of the loan amount. So if the loan amount is $100,000, and you see a $1,000 loan origination fee on the paperwork, the bank or broker is charging you one 1 mortgage point.
To be clear, the “loan origination fee” is paid to the loan officer or broker who initiates and completes the loan transaction with the borrower, and is only paid out if and when the loan funds. This fee is the originator’s commission for helping you get your mortgage loan.
All fees should be completely & transparently disclosed in the Closing Disclosure. Pay close attention to this figure to see exactly what you’re being charged, whether paid out-of-pocket or via a higher-than-market interest rate. Most upfront banks and brokers will charge 1-2% of the loan amount, although this can vary.
You should always compare closing costs, origination charges, lender fees, and your interest rate between different banks and lenders to get the complete picture. We believe in transparency, and will help you find the best mortgage for you, regardless of lender or product.
Q: What is a Tax Monitoring Fee? What is a ‘Tax Status Research Fee?
A: The tax service fee covers the cost of hiring a company that will monitor your property taxes to verify the amount due each year and make sure the taxes are paid on time. Most lenders require that borrowers pre-fund their property taxes in escrow
Q: What are these ‘Escrow Fees'? Is that the same thing as the money I put into Escrow?
A: Don’t make the mistake of confusing escrow fees with money held in escrow. Some states charge an escrow fee or a closing fee. This is paid to the title company, escrow company or attorney for conducting the closing. Regardless of where the title company or escrow company oversees the closing, they both act as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
Q: What is the ‘Delivery Fee' or ‘Courier Fee'?
A: Sometimes you will see an itemized fee for courier or delivery, or a cost for transporting documents. These costs should be relatively small, so be on the lookout for any unusually large fees.
Q: What is the ‘Recording Fee'?
A: As we mentioned above, this fee relates to recording your mortgage with the local government. The fee is charged by your local recording office, for the recording of public land records.
Q: What is the ‘Survey Fee'?
A: While not required by all states, the survey fee goes to a survey company to verify that the property lines for your home match what is on file, and for documenting things like shared fences on the property.
Q: Stem Lending helped me get my loan and I closed. What happens next?
A: As soon as one of Stem Lending's lending partners makes the loan it will be sold. That lender may have sold the loan before closing, sold the loan at closing, or will sell the loan after closing. Depending on which of these actions occurred will determine whether the lender acted as a Mortgage Broker or a Mortgage Lender for your specific transaction.
Q: Do the lenders have to notify me when they sell/transfer my loan? If so, When?
A: Whenever your loan is transferred you are required to be notified within 15 days. Loans being transferred after origination is very common so don't panic if you receive a notice saying your loan is being transferred. The “mortgage servicer” is the company who manages customer service & billing for your mortgage loan. The terms of your loan that you closed under will not change; what will change is that you will now make your monthly payment to a new institution.
Q: You're saying that mortgage loans are sold after closing all the time? So, does it matter where I get my loan?
A: Whether you get your mortgage through a mortgage broker, lender, or mortgage banker, everyone will compete for your business. Most conventional fixed rate mortgages and even adjustable rate mortgage (ARM) loans are ultimately sold to one of the GSEs (Fannie Mae or Freddie Mac). However, who you choose as your initial point of contact for getting your mortgage makes a huge difference. Mortgage Bankers and Brokers deal with multiple lenders so the consumer is exposed to a wider range of products and rates, resulting in more transparency and more choice for our customers.
To recap, closing costs are involved, and the last thing you want to do is become a mortgage expert, days before closing on your first home.
Our goal is to help equip you with the relevant information you need to understand all of the fees and costs your hard-earned money is going toward as you close on your home.
Please reach out to us with any questions at email@example.com.