Closing Costs and Documents

Understanding all of the paperwork and fees in the real estate closing process can be a daunitng task. Today's post offers a complete breakdown of the paperwork and fees in real estate closings. I am doing this because we want consumers to be fully informed about what to expect when they close on their home. I also want consumers to be aware if they are being overcharged or being charged "junk fees". Please review the checklist of paperwork and fees below to help steer you through the closing process maze.

Fees Imposed by the Lender

• Administrative Fee - Covers underwriting and document preparation. Some lenders bulk the two together as an "administrative fee".
• Appraisal Fee - A fee charged by a professional appraiser to determine if the home bing purchased is actually worth the price.
• Credit Report - Charges by the lender to determine a home buyer's credit worthiness. (Sometimes charged by the broker.)
• Flood Certification Fee - The lender will require a flood certificate to see if the house is in a flood zone.
• Funding/Wiring Fee - The price for wiring the loan money to whoever is conducting the closing.
• Hazard Insurance - Also known as homeowners insurance. Lenders will require that you have a hazard insurance policy in effect at settlement. This policy protects against physical damage to the house by fire, wind, vandalism, and other causes.
• Interest - Lenders require you pay the interest due on your mortgage from the closing date to through the first day of the following month.
• Loan Discount - Refers to the points you pay to buy down your interest rat
• Underwriting Fee - A fee charged by lenders to determine the risk of doing business with a potential home buyer.

Fees Imposed by the Broker

• Application Fee - Covers the initial cost of processing your loan application.
• Document Preparation Fee - The cost of preparing documents related to the mortgage and closing.
• Loan Origination Fee - % of your purchase price, an "up front" point as compensation to the broker.
• Mortgage Broker Fee - Typically between !% and 5% of the loan amount. This is the broker's commission.

Fees Imposed by the Title Agent & Settlement Attorneys

• Abstract or Title Search - The fee charged to send an investigator to the courthouse to research the history of the property being purchased.
• Attorney's Fee - If an attorney performs the closing, this fee will be charged.
• Courier Fee - Imposed when a courier service is required to transport documents.
• Notary Fee - Title Agents must get certain paperwork notarized. This fee covers the notary charges.
• Release of Lien (Satisfaction) - A fee charged for getting the county to change the records from a previous homeowner to the new purcvhaser.
• Title Administrative Fee - Sometimes the document preparation and courier fees are grouped together as a "Title Administrative Fee".
• Title Examination - The fee title agents charge to analyze the results of a title search.
• Title Insurance - The total cost of title insurance (fees determined by state).
• Title Insurance Binder - A fee that promises to provide title coverage once the sale is finalized.

Fees Imposed by the Government

• Recording Fees - This is what the county clerk charges to record your purchase of the property.
• Tax Stamps - A tax when a property changes hands. The fee is based on the purchase price.

Real Estate Closing Paperwork

• Good Faith Estimate - Estimate of charges you are likely to incur at your loan closing. This document must be given to the borrower within three days after submitting a mortgage loan application,
• HUD-1 or Settlement Statement - The Real Estate Settlement Procedures Act (RESPA) requires the lender to give you a copy of the HUD-1 prior to going to closing if you request it. This is the final statement of closing costs and will show you all of the fees you are expected to pay at your loan closing.
• Monthly Payment Letter - This document reveals the break down of your monthly payment into principal, interest, taxes, insurance, and any other monthly escrows.
• Mortgage - This document puts a lien on the house as security for the loan.
• Name Affidavit - This document is certifying that you are who you say you are.
• Note - Legal document that obligates the borrower to repay the mortgage at a specified interest rate for a specified period of time.
• Proration Agreement - These describe how you and the seller are dividing up the costs of the house for the month in which it is being bought.
• Title Document Preparation - The cost for preparing all of the paperwork.
• Truth in Lending Statement (TIL) (Regulation Z) - This paper will disclose the interest rate, annual percentage rate, amount financed, and the total cost of the loan over it's life. These are important numbers to check and double check before signing.
• Warranty Deed - This document should include the names of the buyer, the seller, and a description of the property. Often this deed also guarantees that the seller has the right to sell the property. With the signatures of the seller and buyer, this piece of paper transfers the title of the property.
  

Shopping for Title Insurance

One of the main points of the GAO Report on title insurance was the emphasis that consumers need to be able to shop for title insurance. According to the current laws consumers have a right to to shop for their own title insurance. The problem is that most consumer have no idea that they can do this (let's face it, most consumers do not even know what title insurance is until they have already bought it). On top of that most title insurance companies do not put their services in front of consumers.

It is up to all real estate professionals to help consumers make the proper choice when it comes to title insurance. There needs to be a concerted effort to move away from the ABA's that benefit the real estate professionals in these partnerships and leave the consumer out in the cold. Our goal should be to assist the client in making decisions that are best for them. This will lead to long term benefits for the real estate professionals in the form of referrals and repeat business. If your client trusts you they will be willing to tell their friends about you.

Consumers need to learn all they can about every aspect of the real estate transaction. If you don't understand something take the time to educate yourself. You do have a choice so if your mortgage broker, attorney, or realtor pushes you to use their title company or tells you that you have to use who they recommend you need to take a long hard look at that person. They may not have your best interest at heart. I have seen my share of issues arise when we tell a consumer that they have a right to shop around for title insurance. More than once we have had consumers tell us that their real estate representative has told them that they can't shop for it themselves. We even had one attorney who said that they would not work with their client if he did not use the title company he recommended. Why do you think they would do that? I am willing to bet it has a lot more to do with the title company (illegally) paying that attorney for business referrals than it does in actually protecting the client. As consumers you are paying for a service and if that service is not working for YOU it is probably time to find someone else who will work for you.

As real estate professionals it is time to go back to working for the client and get away from working for ABA partners. We owe to our clients and they deserve the best service we can provide FOR THEM.