How do Closing Costs Work?
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"Closing Costs" are the fees that pay for the various services involved when you sell or buy a home. Sellers & buyers negotiate the payment of these costs.
Many of the closing costs associated with buying a house are associated with getting the mortgage loan. At Best Capital Funding , we are highly experienced in residential mortgage lending, so we can compile a comprehensive list of costs related to your mortgage in your "Good Faith Estimate".
In the beginning, we can provide you with a cost worksheet, which is an estimate of costs to complete the home loan process.
Many times vendor costs can not be determined at this point since each loan and property are unique in their own way, but the cost worksheet will provide lender fee estimates and vendor fee estimates to give you a good idea on what the total of costs are to be, complete with upfront property taxes, prepaid homeowners insurance.
Good Faith Estimates (GFEs)
Soon after you submit your application, we'll provide you with the "Good Faith Estimate" of your costs. This cost estimate will be almost exactly what you are to be paying in fees and costs.
As of October 3 of 2015, the Good Faith Estimate pretty much becomes a binding contract between the lender and borrower, so before one can be issued each vendor (title, escrow, appraiser, home inspector, etc...) must submit their fees to the lender even before their job is done.
Due to this new enhancement, it may take a bit longer to get Good Faith Estimates out issued since not all vendors respond with their fees in a timely manner.
New lender legislation basically states if the lender underestimates the closing costs, the loan originator and the lender may be "on the hook" for funds that were underestimated! So in today's market most lenders will give you a "cost worksheet" which is similar to a GFE without it being a legal document.
For example when obtaining a Ventura county mortgage, the transfer tax rate is different that what it is when obtaining a Los Angeles mortgage. Transfer tax rates, calculated by the escrow company, differ depending on which county the subject property resides. But the Loan Originator must estimate these figures as well to give your a "worse case scenario". The transfer tax in Ventura County and Los Angeles County are typically paid for by the seller, but not always! You have to check into who is paying for this prior to signing the purchase contract.
To avoid a monetary penalty, lenders may "fatten up" the cost worksheet to make sure they are "not on the hook" for any erroneous fees that pop up beyond lender control such as title insurance courier fees. The lender knows what their are, but it's the third party service costs we don't know, but yet we are "on the hook" for quoting accurate figures.
We handle buyers' questions about closing costs every day at Best Capital Funding , so please feel free to contact us if you have questions.
Below is a fairly general list of costs for buying a home. We will always provide a specific list of your closing costs when we deliver your Good Faith Estimate.
Standard Closing CostsLoan-Related Costs
- Appraisal Costs
- Pulling Your Credit Report
- Up-front Interest Payment
- Escrow Fees
- Various Taxes
- Loan Origination Fee
- Points — These are costs you pay up-front to lower your interest rate (optional)
- Transfer Taxes & Recording Fees
- Flood or Earthquake Insurance
- Private Mortgage Insurance (PMI)
- Title Insurance