Closing Cost

These are cost directly associated with originating, processing , underwriting and closing the loan.

Some of the common Closing cost include:

Origination fee: This is the fee that that is charged by the firm that takes the loan application and starts the loan process. It is out of this fee that the loan originator is paid.

Loan Discount points: Typically this is a charge by the lender to offer a lower interest rate.

Underwriting, Document Preparation, Tax Service, Administration fees are charged by the ultimate lender typically at closing. These fees will vary from lender to lender.

In Georgia, state law requires an attorney actually close a loan transaction. There will charge fees to search the title of the property, provide owners and lenders title insurance and a binder for the policy at closing. The attorney will pass along any direct charges such as courier fees to mail payoff's of existing liens (such as mortgages), recording fees and pay taxes on the property or the transaction (such as the intangible tax and transfer taxes).

Pre-paid charges

This typically falls into two areas today Interest and Insurance.  Interest is always paid in arrears (after you have used the money).   If you close the loan on June 20th, your first mortgage payment will not be until August 1st. The August 1st payment pays the July interest. This creates a situation that the lender still wants to collect interest from June 20th until June 30th. This is done at closing.

As to insurance, the lender wants to make sure that you keep the property insured.  If you are buying a home, the lender will require you to come to closing with a one year paid insurance policy. This is good for you as well.

Escrow charges

This establishs a savings account with the lender for your next property tax bill and the renewal on your homeowners insurance policy. You will pay 1/12th of your property tax bill and homeowners insurance along with the mortgage payment to the lender. This is helpful, so when these items come due, you forward them to the lender to pay out of the escrow account.

Here is the real deal, you always write the check! Either you will pay them at closing or you will pay them in the form of a higher interest rate over time. The programs advertised on the radio stating that they (or the lender) pays your closing cost is a true statement. But they do not state that it comes at a cost to you.

The key to this whole process is to get the lender to give you choices. Insist on them providing you an estimate on the "no closing cost" option compared to one where you pay the closing cost. Make sure it dicloses not only the cost, but the interest rate and monthly payments as well. You are entitled to a Good Faith Estimate to review the cost of the transaction. If there are no cost then they should provide a Good Faith Estimate with no charges to you on the sheet. If they say they do not need to provide a Good Faith Estimate continue to shop until you find a lender that will provide you one.

Next time a description of Closing cost, Prepaid items and Escrow Charges.