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San Diego Home Purchase Closing Costs Explained   arrow

Processing Fee– This pays for your processor to put your file together along with a few other minor costs including your credit report.

Admin– This pays for the companies operations on the back end including underwriter and funder.

Loan Discount Fee (Points)– This is an fee you would elect to pay in order to get a lower interest rate.  You could also take a higher interest rate an actually receive a lender credit. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.  This gets paid to the lender.

Appraisal Fee- This is the fee paid to the appraiser for creating a report that gives a value to the home.

Flood Cert Fee- Every loan legally requires that the lender verifies that the house is not in a flood zone.  If the house is in a flood zone you will be required to pay for flood insurance.

Desk Review Fee- This fee is for a 2nd appraiser to review your original appraisal and verify that the appraiser came up with a fair value.  This fee is only charged when a desk review is required.  An automated system from Fannie or Freddie triggers these reviews and they tend to be common on low down payment loans or if your appraisal comes in high for the area.

Closing/Escrow Fee– This fee is paid directly to the escrow company which is normally chosen by the sellers.  The escrow company is an independent middle man that ensures both parties transfer what is required to the other.  Escrow reminds me of scalping tickets to a sporting event.  Both parties can agree to a price but who passes over their item first.  Do you give them the money or do they give you the tickets.  Escrow solves this dilemma by taking the money and the house from each and then switching the items.

Notary Fee– A notary will come to the best location for you to sign and verify that you are who you say you are.  In order to notarize loan docs a notary has to carry special insurance with higher limits.

Lender’s Title Insurance– Title insurance verifies that you as the new owner actually owns the property.  If another party tried to come in and claim ownership of your property the title insurance company would defend the lender and ultimately cover the lenders loss if some mistake in title was made.

Owner’s Title Insurance-Title insurance verifies that you as the new owner actually owns the property.  If another party tried to come in and claim ownership of your property the title insurance company would defend you and ultimately cover your loss if some mistake in title was made.

Pest Inspection Fee- Your real estate agent will recommend a company to use to inspect your new home for pests.  Before you make the largest purchase of your life you want to ensure the home doesn’t have any problems.

Mortgage Recording Charge- This fee is paid to the city in order to put the home in your name.

Hazard Insurance Reserves- This is not a fee but a reserve for your escrow account.  If you choose to pay taxes and insurance with your mortgage payment the bank requires a 3 month cushion of extra money to ensure they have enough to make your payments.  This portion is your 3 months of hazard insurance.  When you finish paying your loan, sell your house or refinance your loan you will get this pad back.

County Property Tax Reserves- This is not a fee but a reserve for your escrow account.  If you choose to pay taxes and insurance with your mortgage payment the bank requires a 3 month cushion of extra money to ensure they have enough to make your payments.  This portion is your 3 months of taxes.  When you finish paying your loan, sell your house or refinance your loan you will get this pad back.

Daily Interest Charge- You always skip a months payment when you purchase or refinance a home.  Also interest paid always covers the prior months interest.  So this covers the interest charged in the month you purchase the home.  For example if you buy a home September 23 your first payment is not until November 1.  That November first payment covers interest for October.  So your daily interest charge would be for 7 days and cover September 23 to September 30.

Hazard Insurance premium– Any lender wants to ensure that the property they are lending on has hazard insurance.  One way that they do this is they require the hazard insurance of your choosing be paid through escrow.