Colorado Mortgage Closing Cost Details

Prepaids:

Prepaid interest. The daily interest cost of your new mortgage multiplied by the number of days remaining in the month you are scheduled to close.
Hazard Insurance premium (also known as homeowner's insurance). You'll prepay for the first year of insurance for your new home.
If you are setting up an escrow account you would prepay a number of months to seed your escrow account. Not setting up an escrow account may not be an option for you (depends on how much you'll be putting down) - if it is, you will probably be charged for "waiving your escrows." This charge is not a lender fee - it is an investor fee.
If you are doing an FHA or VA loan, you'll pay an up front mortgage insurance premium or funding fee respectively. Both fees may be included in your loan amount and are considered prepaid expenses.

Closing Costs:

Origination fee. Typically 1% of the loan, this fee is a source of revenue to the company doing the loan and the mortgage consultant who is helping you obtain financing.
Discount points. A discount point is equal to 1% of the loan amount and might exist fractionally (e.g., .25%). Discounts can be a cost for an aspect of your mortgage (e.g., to waive escrows, buy an investment property) or prepaid interest (e.g., to buy down the interest rate). There are other reasons you might pay discounts. Please talk with your mortgage consultant about whether discounts exist for the mortgages you are evaluating and if it makes sense for you to pay discounts to buy down your rate. This cost may or may not be revenue to the lender.
Appraisal. An appraisal is required (as noted above in the "a mortgage is like a table section") to verify the value of the home for the lender. You can expect to spend between $325 and $375 for an appraisal depending on the type of mortgage. In some cases the cost of an appraisal is less, in some cases more. Your mortgage consultant will tell you how much you can expect to spend on your appraisal. This fee is a cost to the transaction, not revenue to the lender.
Credit report. Your credit is a very important of the process of obtaining a mortgage. There is a cost to pulling your credit, and having any inaccuracies fixed. A basic credit report will cost you $9. If there are numerous items to be corrected you might spend as much as $65. This fee is a cost to the transaction.
Tax service fee. This is the one time cost associated with having your interest payments (tax deductions) reported to the IRS each year. This fee is a cost to the transaction.
Underwriting, document preparation, processing, etc. These items cover overhead costs. There is no way to avoid these fees; they are a source of revenue to the lender.
Wire transfer and funding fee. Sometimes this fee falls into the "extra fee" category, sometimes into the cost of the transaction group. Sometimes these fees don't exist.
The last source of revenue to the lender is hidden - but you should be aware of it. It is called a service release premium (SRP) where a lender closes the loan in their own name (then sells the loan). This is paid by the company who is buying the loan - to the company that originated the loan - and can be between 2% and 3% of the loan amount. In the case where the lender is brokering the loan, this is disclosed as a YSP (yield spread premium) meaning that you have taken a higher interest rate from the investor so that the lender can make the money required on the transaction (it takes the place of the SRP). In many cases, lenders will give the option of paying discounts and taking a lower interest rate. In the end, the lender must make a certain amount of money per transaction to be profitable - how that money is paid is something you may want to discuss with your mortgage consultant if your loan is being brokered.
Other examples of closing costs to the transaction - none of which are revenue to the lender:
- Loan closing fee (title company).
- Real estate closing fee (title company).
- Title insurance (title company).
- State tax stamp (State of Colorado).
- Survey (if required by title, survey company).
- Recording and assignment fees (the cost of recording the transaction with the county).
- Flood certification (required for all mortgages - determines if the lender will require flood insurance).
- Flood insurance (flood certification company).
- Tax certification (required to verify taxes - title company).
- You may also see homeowner's association (HOA) transfer fees, reserves, dues, etc. These charges would be related to a property with an HOA (condos and townhomes have them, sometimes a single family residence does as well - it depends on the subdivision). Talk with your Realtor about whether these charges can be expected in conjunction with the home you are interested in.

Keep in mind that the lender controls only two or three fees in the transaction - the rest of the costs are to the transaction (not set by the lender). This is important to know when you're looking at good faith estimates (a document that estimates the costs associated with completing a mortgage transaction). Regardless of what the lender says, there is an objective set of costs to get the transaction done - no way around that. Beware of low-ball estimates that are designed to attract your business rather than showing you the true costs associated with your new mortgage!

Visit more information about closing costs and how to avoid paying for them out of pocket.

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