Closing Costs Explained
When you look over your Good Faith Estimate or when you get to closing and look over what you are paying in closing costs, there are several fees that may not be familiar. Here is an explanation of the common fees you will pay at closing.

Appraisal Fee
This covers the appraisal that verifies the value of the home

Credit Report
This covers the fee to retrieve your credit report

Tax Service Fee
One time fee for the life of the loan that guarantees that your tax bill is sent to the lender and that the lender pays your tax bill. If the lender doesn't pay the county on time, the lender is responsible not you.

Underwriting Fee
Underwriters fee for their work to underwrite the file (MGIC)

Courier
Fee for sending the documents back and forth between the title company, the lender and closing company.

Closing/Escrow Fee
The Title Company charges this for their work on the loan. The Title Company calculates the closing figures, handles the closing and the researches the title information.

Doc Prep Fee
A Closing company's document preparation fee for all the closing documents, and the work associated with preparing them.

Title Insurance
This insures you that you have a clear title on the property and there is no one else 'out there' that has title. The title company will do the research to make sure everything is clear to give you title, but if they mess up and someone is still claiming title, they are responsible.

Title Endorsements
Items that are specific to property including:
PUD endorsements
Survey protection
Environmental Protection
Mineral Endorsements
Condo Endorsements
ARM Endorsements
These items need to get added to the title if the specific situations apply.

Recording Fees
Charges from the County ($6 - $7 /page for the deed of trust)

City/County Tax Stamps
Fee for the release of the deed of trust

State Tax Stamps
Document Fee .01% charged by the state

Survey
This is necessary only if the Title Company requires it. A surveyor will survey the land to make sure the property boundaries are correct as recorded

Interest
This pays the loan interest from the day you close until the end of the month in which you closed.

Taxes
The bank that holds your loan will collect a portion of your property taxes when you close your loan.

Insurance
The bank that holds your loan will collect a portion of your homeowner's insurance when you close your loan.

Mortgage Terms Explained

What is an Adjustable Rate Mortgage (ARM)?
An ARM is a mortgage that has a fixed interest rate for a period of time and then adjusts periodically in relation to an index. The rates for an ARM are typically lower than a 30-year fixed mortgage.

What is the term "amortization"?
Amortization is a method where the loan amount is repaid gradually though regular monthly payments of principal and interest. During the first years of the loan, the majority of the payment is applied toward the interest owed. During the final years, most of the payment is applied to the remaining principal balance.

What is the Down Payment?
The down payment is the amount of the cash available to purchase a home. Some loan programs require the down payment to be from the buyer's own funds and some allow for the down payment to be a gift.

What is an Escrow Account?
An escrow account is an account held by the lender to pay your annual property taxes and hazard insurance.

What is a Fixed Rate Mortgage?
A fixed rate mortgage has an interest rate that does not change for the life of the loan. The principal and interest payments as well are fixed.

What is a Good Faith Estimate?
The good faith estimate is a document the lender provides that outlines the loan program, interest rate, monthly payment, and the closing costs.

What is a Home Equity Line of Credit?
A "HELOC" is typically a second mortgage that allows you to borrow funds up to a predetermined amount. You can use the line of credit similarly to a credit card by borrowing and paying back the funds. The rates for lines of credit are usually based on the Prime rate. Prime rate is an adjustable rate that is dictated by the Federal Reserve.

What is Hazard Insurance?
Hazard Insurance is homeowner's insurance policy that insures the dwelling and contents.

What is an Interest-Only loan?
With an interest-only loan, your monthly mortgage payment is just the interest payment and does not reduce the principle loan balance. Interest-only programs are often used for investment properties or for people who are not trying to build equity in their property. This program can lower your monthly payment.

What is Loan to Value (LTV)?
The loan to value calculation is based on the amount of the loan divided by the lower of the sales price or appraised value of the house. It is expressed as a percentage.

What is Mortgage Insurance?
Mortgage insurance is insurance purchased by the borrower that insures the lender if you should default on the loan. Mortgage insurance is required for all loans where the LTV of the first mortgage is greater than 80%. This can be avoided by putting at least 20% down or combining a first and second mortgage.

What is the term PITI?
A typical mortgage payment is made up of your Principal, Interest, Tax, and Insurance payment.

What are Qualifying Ratios?
Qualifying ratios are also known as Debt-to-Income ratios. It compares the borrower's monthly debt to their gross monthly income.

What is Underwriting?
Underwriting is a review process to determine all information included in your loan application is accurate and approval of the loan. Underwriters review documentation such as bank statements, paycheck stubs, tax returns, etc.