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EXPLANATION OF CLOSING COSTSOrigination Fee (points) - Points paid determine the interest rate received by the borrower. One point equals 1% of the loan amount. The higher the points paid, the lower the interest rate is that is received by the borrower. Apraisal Fee - This fee is to pay for the appraisal on the subject property. Credit Report - This fee pays for the credit report. The credit report usually pulls three credit bureaus. Processing Fee - The processing fee is usually charged by the mortgage broker or bank. This pays for the processing of the loan documents to prepare to submit to the lender for approval. Underwriting Fee - This fee is charged by the lender to underwrite the loan. Wire Transfer - This fee is charged by the lender to wire the funds to the title company to fund the loan. Pre-paid interest - Mortgages are paid in the rears. This means that when you make your monthly payment on the first of the month, that payment pays for the month that has just past. When purchasing, prepaid interest is charged from the day the loan funds to the 1st of the next month. For example, if your loan funded on May 15th, you would pay 16 days of interest from May 15 to June 1st. You would not have a payment on your new loan until July 1st. Your July payment would pay for the month of June. Mortgage insurance - Mortgage insurance is only on loans that have less than 20% equity. A lender will insure a loan up to 80% loan to value. If the loan to value is higher than 80%, then the lender requires mortgage insurance. Each mortgage insurance company is different on the up front charges to the borrower. Some have a .5% fee up front plus a few months impounds and others only have one or two months payments held out in escrow for the impound account. Hazard Insurance - Impounds are charged on most loans with less than 10% equity. The lender will require a few months insurance payments withheld in an escrow account. Property Taxes - Impounds of property taxes are required by the lender on loans with less than 10% equity. They will impound a few months payments in an escrow account to insure that when taxes are due, there is enough money in the account to pay them in the future. Escrow Fee - This fee is charged by the escrow company. The escrow company acts as a 3rd party. They handle the signing of the legal documents and follow the loan through to funding. Document Fee - This fee is charged by the lender. It pays for the drawing of the legal documents (ie. Promissary Note, Deed of Trust, etc) Title insurance - Title companies check to insure that there are no encumbrances on the property such as Notice of Defaults, Mechanic's liens, etc. Title insurance protects the lender from future problems due to liens attached to the property. Recording Fee - This fee pays for the recording of the legal documents with the county. As you can see, there are many costs in purchasing a home. If you have
further questions regarding closing costs or becoming pre-qualified to purchase
a home, please
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