At Valley Mortgage we dissect the expenses associated with any transaction into four categories collectively called "CASH REQUIREMENTS". We use this phrase specifically because it encompasses everything and helps avoid the confusion generated in the industry about what constitutes closing costs. We typically at the start prepare for you a loan estimate. This is an industry tool which itemizes all the related cash requirements. It is the case that many of the expenses associated with financing have become almost standardized. The differences a borrowers experiences from one company to another lies how thoroughly these expenses are reviewed.
Costs are just that - one time expenses associated with the loan application. These include the appraisal fee, the credit report fee, title insurance charge, the mortgage tax, the bank attorney fee, the flood certification fee, the tax service fee, the underwriting fee, the doc prep fee or other bank "junk fee". Most of these expenses you pay at closing. At the start of the application process you spend some money, typically a few hundred dollars to cover the appraisal fee and the credit report fee.
POINTS are a cost. A point is 1% of the loan amount. For conventional financing most borrowers chose a no-point loan. Typically, a borrower pays points in conjunction with an alternative program or for a reduction in rate. While it is rare, if points are required by the loan program you know that at the start.
PREPAID & ESCROWS
These are not costs. They are cash requirements that you pay at the time of closing regardless of financing. Prepaids & escrows include the first year homeowner's insurance premium, the rebate to the seller for real estate taxes already paid on the subject property, and the funds required to set up an escrow account for the payment by the lender of future property taxes and insurance. Sometimes a lender will allow the borrower to waive the escrow requirement.
This speaks for itself. The down payment simply is the difference between your loan amount and the purchase price. Almost every program has a down payment requirement. There are very specific rules about the source and proof of down payment monies.
There are some expenses typically not revealed on a loan estimate. Nevertheless they exist. You should allow yourself some additional reserves to cover the cost of your own personal attorney (in a purchase transaction), the cost of your own title insurance (as compared to the lender policy) and the cost of any home inspections or survey you may chose to secure. Again, our reviewing these items helps you form a more accurate budget.