Loan Origination Fee: The loan origination fee or “loan fee” is the initial charge assessed by the lender and is intended to cover the administrative costs resulting from paper work connected with each phase of their real estate lending activities. Conventional lenders can charge any size loan fee they wish, typically 1%. FHA & VA lenders are restricted to 1% of the loan amount.

Discount Points: [click here]

Appraisal Fee: Where new financing is involved (excluding a private contract) an appraisal is required. The purpose of the real estate appraisal is to assist the bank in determining “real property value” to ensure that they have adequate collateral for the loan amount being requested. The appraiser is expected to present an image of the neighborhood, site and improvements. Which through adequate documentation substantiates his or her conclusion of value. The total appraisal report and not just one individual item is considered in determining if the appraisal supports the estimated market value and overall acceptability of the property.

Credit Report: The status of your credit history is of great importance, as it shows your attitude toward repayment of obligations. Your proven ability to handle obligations will provide evidence that you are capable of budgeting and handling a mortgage payment. What are some of the things a credit repot shows? Stability of residence, credit, income and payment history. Including any late payments, how many days late and is the account current.

Tax Service or Tax Registration Fee: At the close of a transaction where new financing is involved, the buyer pays a one time fee to a private realty tax information firm who, in turn, provides the borrower’s lender with current tax information, relative to the subject property, for the life of the loan. The contract remains in effect, even if assumed by another buyer at a subsequent date.

Escrow/Closing Fee: The escrow holder is a “disinterested” third party who assumes responsibility for seeing all conditions with a given transaction are 100% satisfied before the transaction is finalized. There are the conditions previously agreed upon by the Buyer and Seller and conditions imposed by the lender. Additional duties of the escrow holder are: clear title, pay bills, pro-rate items such as taxes, insurance, utilities, etc. Also, prepare documents to be signed by the Buyer and Seller such as the note, deed of trust, deed, etc.

ALTA Title Insurance: The ALTA, also known as the “lender’s title policy”, protects or insures against matters affecting title that are not of record and would be revealed by an “on-site” inspection, such as an easement (not of record) or encroachment. It is only required when new financing is involved (not including private contract financing), and is paid for by the Buyer as an inducement for the lender to make the loan. The lenders will not endanger such large sums of money without adequate protection of their lien in the first lien position.
Recording Fee: Nominal charges by the County Recorder’s Office for recording pertinent documents. Such as the Deed of Trust.

Flood Certificate: This certificate is issued by a flood research firm who tracks flood patterns in each county. This notifies the lender whether or not flood insurance will be required on the home. Note: Location of the home does not matter. Lenders require this certificate on all homes.
Interim Interest: The interest on a new loan begins to accrue from the date the loan is closed, even though the first payment is not due for 30 to 60 days. Daily interest is charged at the time the loan is closed for the period covering the date of closing to 30 days before the first payment is due. When the first mortgage payment is made, the interest portion of the payment covers the 30 day period preceding the first payment. This pattern continues for the life of the loan with each interest payment covering the previous 30 day period.

Tax & Insurance Reserve Requirements: FHA, VA and most conventional lenders require that the borrower’s monthly mortgage payment include:

At the time of closing, the borrower will establish sufficient reserve account funds for the above accounts when they become due and payable. The reason for upfront payments is, as you know, insurance must be paid before you use it. Because of this, 10 months after closing your lender will receive a bill. Without collecting 2 months upfront the lender will be short, as you will have only made 10 payments.

Private Mortgage Insurance (conventional loans): A special form of insurances designed to permit lenders to increase their loan-to-value ratio, often up to 95% (or sometimes more) of the market value of the property. If the loan is approved, the mortgage insurance company will issue a commitment to insure under a policy carrying 20% of the loan balance. The borrower pays a premium for the insurance on an annual basis until the loan is paid to 80% of the value. Note: Some lenders require that you carry the insurance for a minimum of 2 years. Check with your lender.

Mortgage Insurance (FHA only): Mortgage insurance is required on all FHA transactions regardless of the amount paid down. Mortgage insurance has to be prepaid in cash by either the Buyer, Seller or most can be financed as part of the loan. A monthly installment is also made. FHA will refund unused mortgage insurance if the loan is prepaid (refinanced or if you sell). However, the mortgage insurance will not be removed until the FHA loan is paid off (sale or refinance), it will not be removed at the 80% mark.

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