What Fees Are Included In Closing Costs? Can You Avoid Them?

All closing costs are spelled out in the brokers/lenders Good Faith Estimate (GFE). GFE gives an estimate of any fees associated with your loan. Most fees are standard but amounts will fluctuate depending on the loan program, the value of your home, or lender used. Fees you will see on a Good Faith Estimate are:

Bank Fees:

Loan Origination/Discount Points – Paid to the bank to lower your interest rate. It is your option. Example:  $300K loan amount, 30 years fixed at 6% interest rate – your monthly payment is $1,798.65. Let’s assume, you are paying 1 point discount fee. 1 point = 1% of loan amount ($3,000). Your rate became lower approximately by 0.25%. $300K at 5.75% – monthly payment is $1,750.72. The difference is $47.93. Does it make any sense?

Appraisal fee - For single family residence usually $350 paid directly to the appraiser to determine the current market value of your property.

Credit Report – Joint credit report is approximately $16.

Mortgage Broker fee – Paid to the broker to find the best lender for your loan, to negotiate with the lender (especially on today’s market), to respond to underwriting conditions and stipulations, to contact and work on your behalf with bank attorney, insurance companies, title companies and other parties to this transaction.  The Mortgage Broker fee may vary, so it is important to discuss this fee with your broker. Usually, it is 2%-3% of your loan amount.

Processing fee – Paid to the broker (negotiable) to collect and process all required info and docs (employment, income, assets, debt). It is approximately $250.

Underwriting fee – Paid to the lender for underwriting your loan application – not negotiable, and usually $600-$700.

Application fee – Paid to the broker to process your application. Negotiable, approximately $350.

Other Lender’s fees (Flood Certification, Wire Transfer, Tax Service Fee…) - Paid to the lender and not negotiable

Title Fees:

Closing/Escrow fee – Departmental searches and closing of the loan (≈$250)

Attorney fee – Paid to the lender’s attorney to review your final docs and to close your deal (≈$500)

Title Insurance- Indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. You pay approximately $2.75 per each $1,000 of your loan amount.

Miscellaneous Fees:

Recording fees – To record your deed and mortgage in  the municipality (≈450).

Prepaid interest – Mortgage interest from closing date till the 1st day of the next month.

Insurance/Tax reserves for escrow- Items such as real estate tax, hazard insurance, PMI – if required- that are paid in advance.

 
Bank Fees are determined by the lender. The title and miscellaneous fees are fees determined by third party title and escrow companies. These are set fees that won’t vary much from lender to lender. Other fees may be incurred depending on the state of residence or if the transaction is a new purchase or a refinance. Property inspections and appraisals are other out of pocket costs paid by borrowers that should be figured in, though they are usually paid prior to closing the loan.
Closing costs must be considered when refinancing or purchasing a new home, especially if you are purchasing and only have a designated amount of money to put toward the down payment and other closing costs.
I believe, now you understand that closing costs can not be avoided, and customer always pays closing costs no matter that they are paid out of your pocket,  added to your loan amount or covered by the higher interest rate. In NY State, for example, brokers can not advertise “No Closing Cost Programs” because no such programs exist.

Read our post Closing Cost vs. No Closing Cost