Real Estate Transaction Fees “Closing Costs” Explained
FEES EXPLAINED: Every mortgage transaction has fees and there isn’t any way around that. Sure, you can go with a ‘No Closing Cost’ option. But all that means is that you are paying a higher interest rate to off-set the cost of fees that you would otherwise be paying. Or you can go with a Lender/Broker that promises ‘No Lender Fees’—only to be surprised that you still had to pay for an appraisal, taxes, Title, and Escrow Fees (because, hey!, those aren’t technically Lender Fee’s, right?). The bottom line is that Lending is a business and there are certain reasonable fees that you can expect to pay on a mortgage transaction. The question is, how much is reasonable and which fees are considered normal? The following list may help you sort out those questions.
PLEASE NOTE that these are not quotes on fees charged nor are they fees that you would necessarily see on any mortgage. They are provided as an information guideline only. The actual fees will vary from lender to lender in both type and amount.
Processing: Charged for collecting information and the packaging of that information which is necessary to close the mortgage transaction. Generally this fee does not exceed $500
Underwriting: Charged by lender for verifying that all information and documentation required to close the mortgage transaction conforms to a mortgage program’s guidelines. This fee is generally not more than $800.
Pro-Rated Interest: This is not a ‘fee’ but is rather the amount of interest you are accountable for prior to the date of your first mortgage payment. Let’s say your loan closes on the 15th of June. Your first mortgage payment would most likely be due not July 1st but rather August 1st. Your monthly payment would only cover July 1st to August 1st and NOT June 15th to July 1st. So you are charged the interest from June 15th until July 1st and that amount is charged by escrow at closing.
Document Preparation: Charged by lender for preparing accurate loan documents that reflect the selected mortgage program’s terms and rate. This fee is generally not more than $150.
Tax Service: Charged for arranging the accurate disbursement of taxes. This fee is generally not more than $75.
Funding Fee: Charged for verifying information necessary to release the proceeds/funds. Generally not more than $500.
Wire Transfer Fee: Charged for the process of wiring funds to the proper account. Generally not more than $70.
NOTE: If you combine the Processing, Underwriting, Funding, and Document Preparation fees, the amount should not exceed about $1,500 for a single loan (it may be higher if you are doing a 1st and 2nd mortgage at the same time). Any amount above $1,500 may not necessarily be ‘taking’ you for your money—but it can be considered higher than the average.
Escrow Fee: Charge by the escrow company for objectively facilitating the mortgage transaction according to all applicable law. The charge can fluctuate based on the loan amount and whether the mortgage transaction is a refinance or purchase. You can generally expect to pay between $250 and $1,200. However, escrow charges for purchased homes priced over $500,000 can often double or triple that amount (Though any amount over $2,000 can still be considered outside the norm).
Loan Tie-In Fee: Charged for arranging the simultaneous closing of a first and second mortgage. Generally not more than $250.
Messenger/Courier Fee: Charged for arranging the the transportation of documents. Generally not more than $100.
E-Mailed Docs: Charge for receiving loan docs via E-Mail. Generally not more than $150.
Notary: Charge for having documents signed by a legal notary. Generally not more than $150–though it will cost more if the notary travels to the signing place of your choice (such as your residence)
Title Insurance: This charge is to pay for the title insurance and is directly related to the loan amount. Generally not more than $600-$1,200, although it may be increase or decrease for very high or low loan amounts.
Title Endorsement Fee: Generally not more than $250.
Record Warranty Deed: Generally not more than $75.
County Taxes: County taxes must be pro-rated for a number of months. The number of months depends on the month you close your mortgage and when property taxes are due for that county. It can be any where from 3 to 12 months worth of Property Taxes. However, if your taxes are impounded into your mortgage, the number of pro-rated months may exceed 6 but should not be more than 12 months at the extreme.
Home Owners Association: Home Owners Association fees are prorated as well, though generally for 1 to 3 months.
Home Owners Insurance: The amount prorated depends on if you have insurance impounded or not. If they are impounded with your taxes it will be for the same amount of time. If not, it is generally prorated for 1 to 3 months or with a year paid in full at escrow.
Hazard Insurance: The amount prorated depends on if you have insurance impounded or not. If they are impounded with your taxes it will be for the same amount of time. If not, it is generally prorated for 1 to 3 months.
APPRAISAL: Charge for having the value of your property accurately assessed. Generally about $500, although that can increase based on a high property value or other circumstances such it being a unique property or at a distance from a city.
Appraisal Review: This is actually a Lender’s fee charged to verify the accuracy of the appraisal. Generally not more than $150.