First time home buyer seminar

What is a loan estimate?

Unfortunately, one of requirements of buying a home are “closing costs”. So what are mortgage closing costs?

Closing costs are charges paid by the home buyer to process the loan and record (register) the loan and sale with the state and county. The real estate closing costs (fees) paid to the state or local government are called deed transfer tax, recordation fees, and documentary tax stamps.

Typical lender closing costs can include discount and/or origination points, application fee, appraisal fee, credit report fee, title search and title insurance, survey fee, escrow account, flood certification, and per diem interest.

The mortgage lender will provide you with a good faith estimate of the closing costs when you make loan application. The good faith estimate will also include your down payment, mortgage amount, type of loan (i.e. FHA, VA, USDA, or Conventional). Depending on the loan, the seller is permitted to pay a percentage of the buyer’s closing costs. Read more

After the financial crisis a few years ago, the Federal Government now requires all banks, mortgage brokers, and mortgage bankers to provide homebuyers with a “new” good faith estimate of settlement costs within 3 days of a completed loan application. The new closing cost estimate is designed to bring conformity to the lending industry. All lenders are required to issue the same new good faith estimate to applicants’, regardless of whether they are located in California, Florida or any other state. The “GFE” is the same. The new closing cost form makes it much easier for the borrower to company loan offers.

This regulatory change requires lenders to become more accurate with their good faith estimates. Fines and penalties may be imposed by the Federal government if the lender substantially misinforms buyers of the closing costs. Here is a great video produced by the Department of Housing and Urban Development about the new good faith estimate and closing costs.

The final step in buying a home is the closing (or settlement).

The closing or settlement is when the seller signs over the deed to the homebuyer; and the buyer, mortgage company, or settlement officer hands a check to the seller.

The buyer pays for the down payment, closing, and escrow costs at settlement. The entire closing is regulated by the Federal and state government. The HUD-1 is the statement of closing costs to the buyer and seller. The following video explains the real estate settlement.