The Mortgage Tools Series is BACK: Home loan closing costs- Fees vs. Costs- What’s the difference?

The Mortgage Tools Series is BACK: Home loan closing costs- Fees vs. Costs- What’s the difference?

screwdriver.jpgHow do you explain to your real estate client what are prepaid items and what are closing costs for a mortgage loan? When negotiating a contract in this current buyers market it is common the “closing costs” are negotiated to be paid by the seller of the property. The confusion lies in what is a reoccurring closing cost and a plain closing cost.There is a difference and it will help the experience of buying and selling real estate if everyone is on the same page. As a Mortgage Broker we deal with questions of closing costs on a daily basis. So let’s start with what are prepaid items of a mortgage loan and what are generally considered not reoccurring closing costs. These are charges that will follow you as long as you own the home.

Prepaid charges are most commonly:

  • HOA dues
  • Mortgage Insurance due from the close of escrow until the end of the month
  • Homeowners insurance if impounded
  • Real Estate Taxes if impounded-
    • Impounded is defined by….Fees paid in advance. Monies in the account are your funds, and the lender uses them to make payments on your homeowners insurance, property taxes and mortgage insurance (if applicable). Each month, in addition to your mortgage payment, you provide additional funds which are deposited into you impound account.

Reoccurring Closing Costs are most commonly fees associated with a loan. You can ask yourself the question: is this a bill I pay monthly?

  • Underwriting Fees
  • Lender Fees
  • Processing Fees
  • Credit, Appraisal, and Escrow charges

Is this an important discussion to have with your client before there Real Estate purchase- the answer is-yes. It will show your clients a portion of what goes in to the negotiation of a Real Estate deal. Realtors if you are faced with the questions you now know a simple source to refer your client to. Someone that speaks the non real estate language- Non-RE.

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