This is the third part of a series of three articles covering the typical expenses of getting a mortgage. The fees discussed in this article are not generally negotiable and will have to be paid. If you are purchasing a home, you can negotiate to have the home seller contribute to your closing costs to help pay for these items. Make sure that if you want the seller to contribute to your closing costs that you tell your Real Estate Agent when you are preparing your purchase offer.
Review Part 1: Expenses During The Mortgage Loan Process Explained Part 1
Review Part 2: Expenses During The Mortgage Loan Process Explained Part 2
Lines 1100-1108 – Title Charges – These fees are charged by the title company. Make sure when you get your GFE that these fees are included. If they are not, you will be surprised later when they are actually charged. A trick of some loan officers to get consumers to take their deal because it looks like low fees are being charged is to leave these fees off the GFE in the beginning when the loan officer knows you are shopping for the best deal. These fees vary for every state in the US so I will not talk about what they cost. Just know that if you are comparing offers from different mortgage companies then these fees should be about the same.
Lines 1200-1203 – Government Recording and Transfer Charges – These are standard fees charged according to the county, city, and state that you live in. It is too detailed to list what these fees are for every jurisdiction in the US. Again, if you are comparing GFE’s between companies these fees should be the same.
Line 1300 – Additional Settlement Charges – Pest Inspection fee is paid typically when you are buying a home and you are required to get a pest inspection. This fee can be negotiated with the seller of the home, but usually you are going to end up paying it. The seller will most likely have to make property repairs based on the pest inspection findings, but again this is subject to your real estate purchase contract negotiations.
Line 901 – Interest for – this line shows what we call “interim interest”. This is the money that the lender will charge you on the money you borrow at your mortgage note interest rate from the day your loans funds until the end of the month. For a purchase, this should reflect the days from the day you sign loan documents on your home to the end of the month. For a refinance, generally this number would reflect three days after you sign your loan documents to the end of month. The lender charges this interest to the end of the month to set up your mortgage payment for the following month. See
Line 902- Mortgage Insurance Premium – This fee is charged when you get an FHA loan. The fee is standard no matter who you use to do your FHA loan. It will generally be at least 2% or your loan amount as an estimate.
Line 903 – Hazard Insurance Premium – This reflects the cost of your hazard insurance policy premium for a year. This number is either an estimate or it should show what you have gotten quoted for a policy. If you are buying a home, this will be the cost of your policy for a whole year. The mortgage company will have you pay for the first year up front and they will also collect a few more months so that over the course of a year of you paying escrow payments they can make your insurance premium payment next year. If you are refinancing, you might not see this fee charged as your policy is already in place. Either way, this fee is based on your insurance policy premium, not what a mortgage company will charge you.
Line 905 – VA Funding Fee – This fee is charged if you are getting a VA fee. You must page this fee. On a purchase mortgage, you can negotiate to have the seller help pay this cost. Let your agent know that you intend to use your VA loan so they can try to negotiate some seller assistance on this fee. This is a standard fee for VA so it should be the same for any mortgage company.
Section 1000 - Reserves Deposited With Lender - This section includes lines 1001-1005. This section shows you how much your lender is collecting from you to set up your escrow account. Of course this is provided that you are setting up an esrow account. (See Mortgage Terms)
Line 1001 – Hazard Insurance Premium – Your annual home owners insurance premium is broken down into monthly installments by the lender to make up your escrow payment. Generally, if you are escrowing your taxes and insurance then you will see somewhere between 1-5 months charged to set up your escrow account. Sometimes you will see line 903 blank and this line, 1001 show something like 14 months. This is ok because it is still showing a year and a couple of months for your escrow account. The purpose of the escrow account payment is to break up your annual real estate taxes and insurance premium into monthly payments. If you make these payments every month, then when they come due, the mortgage lender has enough money to pay these bills on your behalf. It is convenient to pay your taxes and insurance this way. You will most likely have to escrow if your loan amount is greater than 80 LTV.
Line 1002 – Mortgage Insurance Premium Reserves – generally this will be $0 as there is no annual amount on just about every policy. You will see this payment, if you have to pay PMI, in your total monthly payment section on the GFE.
Lines 1003 – 1005 – School Tax, Taxes and Assessment Reserves, Flood Insurance Reserves - these are other annual, quarterly taxes and insurance policies that you might have to pay depending on the location of your property. Again, these should not vary much between mortgage companies’ GFE's.
Section - Total Estimated Settlement Charges – this should be all your charges from above added together.
Section - Compensation to Broker – In this section, Mortgage Brokers are supposed to disclose their Yield Spread Premium. This is the amount of money that they are getting paid from the mortgage lender for the interest rate you pick. This fee is directly related to lines 801,802, and 808 from above. Mortgage Bankers and Bankers do not have to show this fee, but they also make this fee. So do not be fooled by a Mortgage Banker GFE that does not show this fee. You will also not be paying this fee out of your pocket.
It is an old trick for Loan Officers from another company to look at this fee and say that it is something you have to pay so that they get your business. If someone tries this on you, you should know better now. Also, real estate agents like to point this fee out as something that is “bad” if you do not use their preferred mortgage person. So just beware. This fee is how every mortgage loan officer gets paid on their loans that they close no matter where they work.
Review Part 1: Expenses During The Mortgage Loan Process Explained Part 1
Review Part 2: Expenses During The Mortgage Loan Process Explained Part 2
