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Closing Costs

There are various fees and charges involved with obtaining a mortgage loan. These fees and charges as a whole are referred to as Closing Costs. There are two types of Closing Costs: Non-Recurring Closing Costs and Prepaid Closing Costs (also known as "Recurring Closing Costs" or "Prepaids").

Non-Recurring Closing Costs refer to those fees/charges for services related to the processing and closing of your loan, such as the appraisal fee, credit report fee, origination fee, discount points, processing fee, title insurance, closing fee, etc. Some of these costs are paid directly to the broker/lender, and some are paid to a third party vendor. The reason these are referred to as “Non-Recurring” is because they are only occur once.

Prepaid Closing Costs are payments and/or deposits for items such as property insurance premiums, interim interest, real estate taxes, and initial deposits to the escrow account.  The reason Prepaid Closing Costs are referred to as “Recurring Closing Costs” is because they will continue to recur as long as you have the loan. Except for the interim interest charge (which will be based upon the interest rate on your loan) all Prepaid Closing Costs should be the same in nature and amount regardless of which lender provides you the mortgage loan - the amount of real estate taxes is set by the county; you select the insurance company to provide the property insurance; the amount of money that is required to be deposited into the escrow account is governed by Federal law.

There are some Closing Costs that will be the same amount regardless of the lender (i.e. recording fees, release fee, state documentary tax). There are some Closing Costs that could vary moderately in amount depending upon the lender (i.e. appraisal fee, credit report fee, title insurance, flood certification, etc). And there are Closing Costs that will vary greatly in their amount depending upon the lender (i.e. origination fee, discount points, underwriting fee, etc.).

Listed below are typical Closing Costs and an estimate of the amount for the specific charge.

Non-Recurring Closing Costs

Appraisal fee: $200-$500

Almost all mortgage loans require an appraisal report of some type. Most lenders utilize independent licensed appraisers to provide the appraisal report, although some lenders have employees who prepare the appraisal report. The cost of the appraisal report varies depending upon the appraiser selected, the type of appraisal that is needed, the size of the property, and location of the property. The lender typically collects the appraisal fee “up-front” (at the time of loan application) and then pays the appraiser directly.

Credit report fee: $20-$55

Almost all mortgage loans require a credit report on the borrower(s). Credit reports are provided to lenders by credit reporting agencies. The cost of the credit report varies depending upon the agency selected and type of report that the lender requires.  The lender typically collects the credit report fee “up-front” (at the time of loan application) and then and pays the credit-reporting agency directly.

Loan origination fee: 0% - 5%

Fee paid to the lender for originating the loan, expressed as a percentage of the loan amount (i.e. a 1% origination fee on a $100,000 loan is $1,000). The amount of the origination fee will vary depending upon the lender, the type of loan, and the size of the loan.

Discount Points: 0% - 6%

Discount points are paid to reduce the interest rate of the loan, and are usually expressed as a percentage of the loan amount.

Lender fees: $150 - $1,000

Lender fees come in various names and amounts, and include such items as an underwriting fee, processing fee, document preparation fee, and administrative fee.  These fees are paid directly the lender. 

Document preparation fee: $100 - $200

A fee to cover the cost of preparing the closing documents.  Most lenders utilize a 3rd party vendor to prepare the closing documents, although some lenders prepare the closing documents themselves. The amount of this fee will vary depending upon the lender or 3rd party vendor that prepares the closing documents.

Flood certification fee: $15 - $25

A service to determine whether the property is located in a Flood Hazard Area. This fee is paid to a company that performs this determination, and the amount of this fee will vary depending upon the company that is selected to provide this service.

Tax service fee: $75 - $95

A service utilized after loan closing to provide the lender that services the loan the amount of the property taxes. This service also monitors whether any unauthorized transfers have occurred or any liens have been placed against the property. The amount of this fee will vary depending upon the company that is selected to provide this service.

Title Insurance (owner's policy): $0

There are 2 types of title insurance: An "owner's policy" and a "lender's policy".

The owner’s policy protects the interests of the borrower/buyer, and remains in effect for as long as the buyer owns the property.  Thus, owner's title insurance is not applicable for a refinance transaction or for 2nd mortgages.  In most cases, the cost of the owner's policy is typically paid by the property seller.  

Title Insurance (lender's policy): Varies

The lender’s policy protects the interests of the lender, and the policy terminates when the loan is paid off. In most cases, the lender's policy is paid by the borrower. A lender's policy is typically not required for 2nd mortgages. The primary factor that determines the cost of the lender's policy is the purpose to the loan (i.e. purchase or refinance) and amount of the loan. 

When the purpose of the loan is to purchase property, the typical cost for the lender's policy is $120 - $150, regardless of the amount of the loan.

When the purpose of the loan is a refinance, the cost for the lender's policy will vary depending upon the loan amount and title company selected. For example, the cost for the lender's policy for a $100,000 loan would be approximately $740, and the cost for title insurance for a $300,000 would be approximately $1,110.  Although most title companies charge the same for title insurance there are slight differences in the cost of title insurance depending upon the title company. For refinance loans, the cost of the title insurance is typically reduced if the loan being paid off is less than five years old.

Title Endorsements: Varies

For most mortgage loans, additional endorsements to the title insurance policy are necessary to provide additional title protection to the lender.  The necessity of these additional endorsements will vary depending upon the lender, type of loan, amount of loan, and type of property.  The cost of these endorsements will vary depending upon the endorsements that are required by the lender and the title company selected.

Title Search:  $105 - $110

For 2nd mortgages, instead of title insurance, a title search is obtained.  The title search reflects the owners of the property, liens against the property, and property tax status.  Although most title companies charge the same for a title search, there are slight differences in the cost depending upon the title company selected.

Loan Closing Fee: $100 - $200

Fee paid for closing the loan. Since title companies typically close the loan, the fee is usually paid to a title company, although some lenders may close the loan and charge a fee for this service. When a title company is utilized to close the loan, the amount of the closing fee will vary depending upon the title company selected.

Real Estate Closing Fee: $75 - $100

Fee paid for the real estate closing and applicable only when the loan is utilized to purchase property.  Since title companies typically conduct the real estate closing, the fee is usually paid to a title company, although some lenders may conduct the real estate closing and charge a fee for this service. Typically this fee is split 50-50 between the buyer and the seller. When a title company is utilized to perform the closing, the amount of the closing fee will vary depending upon the title company selected.

Improvement Location Certificate (ILC): $100 - $200

The cost for an ILC on the property, and paid to a licensed property surveyor. An ILC may or not be required depending upon whether or not the title company selected determines that it is necessary in order to provide clear title insurance to the lender.

Recording Fees: $50 - $150

Fees paid to the county for recording the deed of trust and the warranty deed (in the case of a loan to purchase property).  County recording fees are the same throughout the state of Colorado and depend upon the number of pages in the document being recorded. The number of pages in a deed of trust can vary depending upon the number of  riders to the deed of trust. The warranty deed is usually a one-page document.  

Tax Certificate: $20 - $25

Fee paid to a title company to determine the status of property taxes on the property. The amount of the tax certificate will vary depending upon the title company selected.

Release Fee:  $25 per release

If the loan is paying off an existing loan (i.e. refinancing a current mortgage), this fee is paid to the county for releasing the existing mortgage loan.

State Documentary Fee: varies

Fee paid to the state of Colorado and applicable only on loans to purchase real estate.  The amount of the fee is .10 per $1,000 in sales price (i.e. on a $100,000 purchase price, the fee will be $10).  

Prepaid Closing Costs

Interest

The first payment date on most mortgage loans is the 1st day of the first full month following the month in which closing occurs. Since interest on a mortgage loan is typically paid in arrears, there is an interest charge at loan closing on the remaining days of the month. For example, if the loan closes in August, the 1st payment will be October 1st, and the October 1st payment pays for interest for the month of September, and interest for the month of August is pro-rated based on when the loan is disbursed during the month of August. 

Hazard/Property Insurance – Initial Premium and Reserves

Lenders will require that property be protected with hazard insurance that is in full force as of the date of loan closing. Thus, the annual premium for the insurance must be paid at closing. In addition, for most 1st mortgage loans, most lenders will require that an amount equal to 1/6th of the annual premium be collected at closing and placed in the escrow account.

Flood Insurance– Initial Premium and Reserves

If the property is in a flood zone, lenders will require that property be protected with flood insurance that is in full force as of the date of loan closing. Thus, the annual premium for the insurance must be paid at closing. In addition, for most 1st mortgage loans, most lenders will require that an amount equal to 1/6th of the annual premium be collected at closing and placed in the escrow account. 

Taxes - Reserves

For most 1st mortgage loans, most lenders require that an escrow account be established to pay the real estate taxes levied against the subject property. In general, the lender collects the borrower’s portion of taxes for the current year plus an amount equal to 1/6th of the annual taxes.

 

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