Estimating Costs

Below is a brief look at charges and fees that can be expected when applying for a mortgage.

Closing costs are charges, fees and prepaid items for processing your loan and mortgage. Closing costs can even include an optional expense you pay to reduce your interest rate.

Closing costs are collected by the lender but are paid to various organizations from the lender to the government to the mortgage broker, if you use a mortgage broker instead of a direct lender like Nationwide Financial Services International Incorporated. These expenses vary from state to state, however, often add up to between 3-6 percent of the amount of money borrowed.

Fees paid when you submit your loan application:
Appraisal Fee- The amount charged by an appraiser who determines the value of a home.

Credit Report Fee- The fee for receiving your credit report from a credit reporting agency.

How much can I expect to pay?
By law, lenders must give you a document called a "Good Faith Estimate" within 3 days after you apply for a loan. This paper tells you how much you should expect to pay for closing costs. It is a lender's best estimate of how much all the fees should cost you. The actual amount you pay may be different. Amounts and types of fees and charges vary based on your geographic location, the loan and other considerations.

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Fees for closing and services:
These are fees typically paid on the day your home purchase or finance is final. If you are buying a home, some of these fees may be negotiable with the seller-he or she may agree to share some closing costs. If so, make sure this agreement appears in the purchase contract you sign.

If you'd like to keep more cash on-hand, your lender may suggest including your closing costs in your total loan amount. This is what it means when you hear "no cost" or "no out-of-pocket expenses." Often available with home refinance loans, this option has the advantage of eliminating your upfront expenses. The disadvantage is that your loan amount increases and you end up paying interest on the costs. Our loan professionals are available to help you decide if this is the best option for you.

Real Estate Agent Commission-The amount you have negotiated to pay a real estate agent or broker when you purchase a home-usually, a percentage of the home's price.

Origination Fee-The fee charged by the lender for processing your loan.

Loan Discount or "Points"- You can sometimes secure a lower interest rate by paying "points." A point is equal to 1% of the amount of money you are borrowing.

Statement or Closing Fee-The fee paid to the closing agent to act as a disinterested third party who handles the finalizing of your loan and the purchase of a home.

Title Insurance Costs- To issue title insurance, government and other records must be searched to make sure no one else has a legal claim to the property. A title insurance binder and an insurance policy are also required. You are charged separate fees or an all-in-one amount for these costs. The title insurance policy you are required to purchase protects the lender. It is a very good idea to pay a bit extra and take out a separate title insurance policy that protects you.

Attorney's Fees- If you live in an area where an attorney works on title or other parts of a home purchase, there is a fee for legal services.

Property Taxes- Any local property tax must be paid annually. If you purchase a home in the middle of the year, you may be asked to share some of the year's taxes with the seller. The closing agent prorates the amount you owe.

City, County and State Charges- The local governments where you live may charge taxes and fees to record and stamp documents such as deeds and loan paperwork.

Survey- The cost of surveying the property to determine the size of the lot your home is on. Or, for example, whether a public utility company has a right to have access to the property.

Pest Inspection- If an appraiser notices signs your home may have termites or other pests, or if the laws in your area require it, a pest inspection and report must be done. Fees for these services are included in closing costs.

Flood Check Fee- Lenders must check Federal Flood Maps to find out if your home requires flood insurance. This fee covers the map search and the issuance of a certificate.

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Prepaid amounts required by lenders:
When you purchase or refinance a home, there will be some necessary charges to cover things like the interest on your loan until your firs payment is due. These are called "pre-paids" and are collected on the day your purchase or refinance is final. The following pre-paid costs are required at closing:

Interest-If your loan is finalized before the last day of the month, at closing, you must pre-pay interest on the loan for the time between the day the loan is funded and the first day of the next month.

Homeowners' Insurance Premium-One year of this insurance coverage that protects the lender and you if the property is damaged is paid at the loan closing.

Private Mortgage Insurance-Typically, if you make a down payment of less than 20%, lenders require Private Mortgage Insurance (PMI) to protect themselves in the unfortunate event that a borrower does not repay the loan.

Reserve or Escrow or Impound Account-This account is set up and held in trust for you by the lender. It is used to pay for property taxes, homeowners' insurance, flood insurance and PMI. Usually, at loan closing, enough money to pay for at least 2 month's worth of these items is deposited in the account. Your lender pays these bills for you when they are due. Your monthly mortgage payment includes money that is deposited into this account. Not all loans require a reserve account.

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If you need further explanation of closing costs and how they are applied to your loan, call a mortgage loan expert at Nationwide Financial Services International, Inc.