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Understanding Closing Costs
Closing Costs associated
with a loan transaction are summarized for any
potential borrower on a "Good Faith Estimate"- a document provided
with any
loan application. The Good Faith Estimate reflects the approximate
costs a
borrower may incur at the settlement (closing) of a proposed loan.
While there are many ways to structure the closing costs of a loan,
your
lender or broker will only have control over the section titled:
Items
payable in connection with the loan. Any other Title or Escrow fees,
as
outlined below, will be the same regardless of the company you work
with to
complete your transaction.
When looking at closing costs the main difference between a purchase
transaction and a refinance is that when completing a purchase, a
borrower
can not satisfy these charges with proceeds from the new loan. These
costs
will either have to be paid by the seller (see "seller
contributions") or
will have to be paid by the buyer using their own funds at the
closing.
When completing a refinance, ALL of the charges below can be paid
with
proceeds from the new loan.
In general, closing costs can be divided into 3 main areas:
Items payable in connection with the loan:
This section would include any fees a borrower may pay a lender such
as
processing or underwriting fees, as well as any origination fee.
Also in
this section of costs would be an appraisal fee payable to a 3rd
party
appraiser.
Title Charges:
These costs are 3rd party vendor costs that are part of any loan
transaction, regardless of completing a purchase or a refinance.
These will
include some type of closing fee for the service of being the
impartial
party executing the transaction, wiring funds, researching a
property's
title standing and finally recording the new deed with the county.
In
addition to the actual service charges, every NEW loan in the United
States
will require Title Insurance.
Items to be Paid in Advance:
This area of a Good Faith Estimate refers to funds that must be
collected
for any loan that will have escrows (taxes and insurance collected
as part
of a loan payment and distributed to the county and insurance
company).
This occurs in every county in every State and your lender has no
control
over what is required by any respective county when setting up an
escrow
account.
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