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Closing Cost

When you are considering a new home loan or a mortgage refinance, something that many people don't think about but that everyone should plan for is the closing cost of that loan. You may have heard the term and wondered what a closing cost is and how it can affect you. 

 

As you know, everything that someone does must be paid for, from the loan officer to the appraiser to the underwriting company to the title clerk.  Your closing cost is made up of all of these little charges to pay the people who are doing things to make your loan happen. 

 

You may see loan origination and processing fees on the Good Faith Estimate that your loan officer provides to you.  Most of the origination fees are paid by the lender, but you are usually charged for the processing of all of your paperwork.  This will be listed as a processing fee or a document fee. Other costs that are usually included are your actual down payment as well as the first year's premium for homeowner's insurance and a reserve for property taxes.  The insurance is required by the lender in order to protect their investment.  You may also see the commission for your realtor on the list of fees as well as title fees that pay the officers for creating and submitting the paperwork as well as getting it recorded by your county of residence. 

 

As you can see, there are many fees that may be included in the closing cost when you are mortgage refinancing or getting a home loan. These same costs will be included if you have poor credit and are getting a bad credit mortgage. However, these costs can vary somewhat form one lender to another, so when you are shopping around for a lender, you can select the one with the lowest closing costs. Understanding what the closing costs are is the first concern, and the second is how to pay for them.   

 

You cannot use actual cash to pay the closing costs, but must have verified funds such as a cashier's check to make this payment.  You may also have the funds wired directly from your bank to the title company.  This money must be seasoned money that has been in the same account for at least 2 months so that the lender has confidence that you are capable of saving money and budgeting and have the money saved strictly for the purpose of purchasing a home.  If you have moved the money around or if it has not been in the account long enough, you may not be able to close on the loan.