The "loan discount" refers to the "points" you
pay to buy down your interest rate. If you choose to pay points,
each point will be 1% of the loan amount. Take out a loan for $100,000
and 1 point will equal $1000. As a general rule of thumb, for each
point you pay, you buy down the interest rate by 1/4%. So, for example,
you could pay zero points and get a 7.75% interest rate. Or you
could pay 3 points and get a 7% interest rate. If you are purchasing
a house, points are tax deductible the year you take out the loan.
If you are refinancing a house, you have to deduct the points over
the life of the loan.
DOCUMENT PREPARATION FEE:
Lenders have to prepare several documents in the process of
granting you a loan. The process is complicated and consumes a large
amount of resources. Lenders charge this fee to recoup their
costs. This fee may vary from lender to lender.
This fee covers underwriting and document preparation. Some lenders
lump the two together and call it their "administrative fee."
The fee will likely vary among lenders.
FUNDING FEE/WIRE FEE:
This fee covers the cost of wiring your loan money to whoever is
conducting your closing. This fee is imposed by the banks.
Lenders and brokers pull your credit report to see if you have a
positive payment history. If they require a full residential
mortgage credit report, that's more expensive because the credit
reporting agency actually takes the time to call your creditors and
verify the items on your credit report. Some lenders are now
satisfied with a simpler credit report called a "tri-merge" that
contains information from all 3 major credit bureaus and does not
get manually verified.
TAX SERVICE FEE/ESCROW FEE:
Lenders like to make sure you are paying your property taxes, because
if you're not, the county can seize your home and the lender won't
get paid. So, at the very least, lenders hire an outside company
to monitor whether your taxes are being paid. Often lenders require
you to send extra money along with your mortgage payments. They
collect the money in an escrow account and then pay your property
taxes for you.
Lenders require a professional appraisal so they will know if the
home you're buying is worth the amount of money they are lending
you. If you are refinancing, the lender may be satisfied with a
"drive-by" appraisal, which is much less expensive.
A survey is performed to make sure the boundaries of your property
are clean and clear. Surveyors look for things like misplaced fences,
drainage pipes and shared driveways that may cloud the property
lines and cause a dispute. Lenders ask you to pay for a survey if
you are buying a home.
FLOOD CERTIFICATION FEE:
If you are buying a single-family home, the lender will want to
have a flood survey done to see if the house is in a flood zone.
An outside company will review government charts to find out.
Lenders require you to purchase at least fire insurance to protect
the property since it's collateral for the loan they are giving
you. Most buyers choose to purchase full homeowner's insurance which
covers fires and other disasters (except flooding.) The insurance
company you choose must be approved by the lender. Some brokers
and lenders will try to sign you up for a full year's coverage,
which can be difficult to pay for at the same time as all those
other closing costs. Most lenders are satisfied if
you pre-pay for 2 to 4 months of insurance coverage.
If you are refinancing, never schedule your closing for the beginning
of the month. Why? Because that means there are several days worth
of interest which you will either have to pay at closing or roll
into the mortgage. It's hard enough to come up with the cash for
closing. And you don't want to raise your mortgage any higher.
FEES IMPOSED BY THE BROKER:
MORTGAGE BROKER FEE: 1%-5% of the loan amount
Your mortgage broker is entitled to make a commission for the work
they do in finding you a loan. But their fees are regulated by the
government, so there is a limit. In Virginia, a broker's commission
must be disclosed in writing and signed by the borrower. There is
no cap on broker fees for a first mortgage in Virginia. The cap
for second mortgages is 5% and includes the broker fee plus all
other points charged.
FEES IMPOSED BY TITLE AGENTS AND SETTLEMENT ATTORNEYS:
This is the fee that a title agent of settlement attorney charges
to conduct the meeting where you sign all the paperwork to finalize
your loan and purchase or refinance the home.
SETTLEMENT FEE: see
A "settlement" is the same thing as a "closing."
ABSTRACT OR TITLE SEARCH:
This fee is charged by the title agent or settlement attorney to
cover the cost of sending somebody to the courthouse to research the
history of the property you want to buy or refinance. Some title agents and settlement attorneys have
somebody in-house who performs this work, others hire an outside
This is the fee some title agents and settlement attorneys charge
to analyze the results of the title search done at the courthouse.
They look for liens, judgments and ownership disputes that may hurt
you or the lender later on. .
TITLE INSURANCE BINDER:
This is the paperwork in which the title insurance company
promises to provide title coverage once the sale is complete based
on certain conditions being met. It
is prepared by the title agent or settlement attorney. Some title
professionals include it in the cost of the title search or title
(TITLE) DOCUMENT PREPARATION:
The lender prepares the bulk of the documents required to close
a loan and buy a home, but title agent and settlement attorneys
prepare some too. Some charge for this, others include it under
other line items. Title Associates does not charge for this
Title agents and settlement attorneys must get some documents
notarized. Most have an in-house notary, others don't. Title
Associates has numerous in-house notaries and does not charge for
RELEASE OF LIEN FEES:
This is the fee for getting the county (and the previous lender)
to change the records so the old homeowner and old lender are no
longer mentioned listed as owners. Some title agents and settlement
attorneys include this service under another heading. Others list it
separately so you know exactly what you're getting.
ATTORNEY'S FEES: see
This should be the same as the fee called "Settlement or closing
fee." If a settlement attorney performs your closing, they
may list this service under "attorney's fees" instead.
Title agents and settlement attorneys sometimes have to hire a
courier to transport your documents.
(TITLE) ADMINISTRATIVE FEE:
Some title agents and settlement attorneys lump document preparation
and courier fees into one category and call it an "administrative"
TITLE INSURANCE: Title insurance protects you and the lender in case something was
missed during the title search. For example, if the county misspelled
a name, somebody with a claim to your property might not show up
during the title search. Lenders require you to buy a "lenders"
policy to protect their interest in the property and many people
purchase an owner's policy to protect themselves
If you are refinancing or if you
are buying a house that the seller purchased less than 10 years ago,
you may qualify for the "re-issue rate." You may have to provide
proof that there was a valid title insurance policy in place to get
it. The discount ranges from 25%-30% off. The government does not
require lenders to offer you the re-issue rate.
FEES IMPOSED BY THE GOVERNMENT:
This fee varies wildly from one county to another. It is simply
the amount the county clerk charges to make a record of the fact
that you are purchasing this property. If it's a refinance, this fee
is typically still imposed, because the county has to record the new
lender's name. Some title agents and settlement attorneys will try
to pad this fee.
TAX STAMPS: Based
on purchase price. Varies by jurisdiction.
This is a tax charged when a property changes hands. It's sort of
like a sales tax. The calculation is often different for first-time
home buyers. If you are refinancing, the tax may not be charged
or it may be charged on the difference between the amount of your
old loan and the amount of your new loan. Call your county office
of taxation and revenue to learn the formula.
This is the same as "Tax stamps," above. Just another
name for it.