PA CLOSING COSTS

Application Fee*
Some lenders will charge an application fee in lieu of an appraisal fee and credit report. Although some lenders will charge an application fee in addition to the appraisal and credit report fee as compensation for processing your application.

Appraisal Fee
The home is the collateral for the mortgage loan. The lender will require that an INDEPENDENT FEE APPRAISER, not associated with the lender, loan officer, or mortgage broker to render his or her opinion of the market value for the subject property. The appraiser will establish value by comparing the subject home to 4 similar properties within a reasonable area. In short, the appraiser will determine whether the sales price is fair after comparing similar homes in the area.

The appraiser will also consider the over all condition of the property to determine whether the home’s condition represents a potential risk to the lender. For example, if the appraiser feels the roof is leaking or has concerns about the heating system, the appraiser will note those concerns on the appraisal report, and may suggest an inspection by a professional. REAL ESTATE APPRAISERS ARE NOT HOME INSPECTORS!  Their primary function is to determine value, regardless of loan type (i.e. FHA, VA, other). If you desire a professional opinion of the construction and functionality of the home, hire a professional home inspector.

Credit Report
The lender will obtain a credit report to determine whether your credit history meets the lender’s guidelines for the loan. The lender will usually obtain a “merged” credit report from the three largest credit reporting companies. You can obtain a FREE copy of your credit report. Go to the Federal Trade Commission.

Courier Fee
This is a hold over term preceding the over night mail services. The lender requires the closing documents as soon as possible.

Pennsylvania Deed Transfer Tax
Think of deed transfer tax as sales tax for real estate. The percentage will vary between municipalities and school districts. Typically, one percent is paid to the State of Pennsylvania and one percent is split between the local municipality and school district for a total of 2%. By custom, most real estate transactions will split the deed transfer tax between buyer and seller.

For example, a home selling for $100,000 will normally have a two percent deed transfer tax. ($100,000 x 2% = $2,000). One thousand will be paid by the buyer and $1,000 will be paid by the seller. The deed transfer tax will vary. PA Deed Transfer Tax Page

Pennsylvania Home Buyer Calculators

Pennsylvania Home Seller Calculators

Deed Transfer Tax Exceptions

BERKS COUNTY
City of Reading– 4%

CENTRE COUNTY
Taylor Township – ½%
Ferguson Township – 1¾%
State College Borough – 1½%

CHESTER COUNTY
City of Coatesville– 2%
Tredyffrin Township – 1½%

CLINTON COUNTY
Colebrook Township – ½%
East Kating Twp – ½%
Logan Township – ½%

DELAWARE COUNTY
Randor Township – 1½%
Upper Providence Township – 1½%

LACKAWANNA COUNTY
City of Scranton– 3%

LUZERNE COUNTY
Kingston Borough – 1½%
City of Wilkes Barre– 2%

MERCER COUNTY
City of Farrell– 2%
City of Hermitage– 1½%
Sheakleyville Borough – 0%

PHILADELPHIA COUNTY
City of Philadelphia– 3%

SOMERSET COUNTY
Wellersburg Borough – ½%

WASHINGTON COUNTY
Peters Township – 1½%

Flood Certification
Does the property lie in a flood zone? Lenders will obtain a flood certificate to make that determination. Even if the home is located on Mount Hood, a flood cert may be required. If your house lies in a flood plain, you maybe required to obtain flood insurance.

Mortgage Broker Fee*
Some brokers will charge you a fee for their service.

Notary Fee
Self explanatory.

Origination Points (s)
At one time, the origination fee encompassed document preparation, underwriting, etc., and for some lenders it still does, but this fee is usually considered a discount point.

For government loans (i.e. FHA & VA), the first point or amount up to 1% is considered origination. For example, if the interest rate is 6% + 2 points, one point will be deemed “origination”, and the second point will be discount. If the rate is 5.75% + .75, the .75 will be origination. More examples for clarification”

6% + 0 5.75 + .75 = origination
5.50+ 1.00 = origination
5.25 + 1.50 ( 1.00 = origination, .50 = discount)

Pest Inspection
HUD/FHA and the VA require a pest inspection to determine whether the home has “active” infestation by wood boring insects or organisms. The Seller is required to pay this fee for VA mortgages. Don't be surprised if the lender requests a structural report if the pest inspector reports current infestation or evidence of past infestation. Underwriters are concerned about the extent of damage, if any, and the only way to alleviate this concern is by a qualified inspection.

Processing Fee*
Some lenders will charge a processing fee to defray the cost of processing your loan.

Real Estate Agency Fee*
Some real estate companies will charge a fee to defray the cost of retaining your paperwork and processing your sale.

Recording Fees
After closing, the settlement company will "record" or put on record your mortgage deed, note, etc. at the county recorder's office. These fees will vary by county.

Septic Inspection
The lender may require a septic inspection if the home is not serviced by a sanitary sewage facility. And even if an inspection is not required, you should obtain one. Septic systems can be very expensive to repair or replace.

Settlement Fee
The closing or settlement agent may charge a fee for their services. This fee will vary. Most title insurance/settlement companies will waive this fee if you close in their office.

Survey
The lender or title insurance company may require a property survey to ascertain the property legal boundaries. This fee will vary based on the type of survey (i.e. with stakes, without stakes)

Tax Service*
Charged by lender to obtain real estate tax bills and monitor payments of real estate taxes

Title Endorsement
Think of title endorsements as supplements to your title insurance policy. The most common endorsements are the PA 100 restriction ($50) enforcement, the PA 300 survey exception ($50), and PA 900 ($50) environmental protection lien and PA 810 ($50) condominium endorsement.

Title Insurance
Title insurance protects you against someone claiming ownership in your property. Here’s an example, and this stuff really happens. Let’s say Mr. and Mrs. Smith build a house in the 50’s. Ten years later, Mrs. Smith takes off to California and joins the peace movement . . . without divorcing Mr. Smith. Mrs. Smith is long gone. So Mr. Smith gets remarried and he has a new Mrs. Smith. The Smiths sell their house to you. After a year or two, you get a knock on the door, it’s the first Mrs. Smith, and she tells you that you’re living in her house because she never signed the deed to you. What then? You file a claim with the title insurance company. Here’s another example, and it happened to me. Liens filed against the property like delinquent water and sewage bills follow the property, not the owner. If a lien exists, it becomes YOUR lien. The cost of the title insurance usually includes the title search and an insurance policy that says in so many words that the title (ownership) is exclusively yours and no liens or encumbrances exist. The cost of the title insurance premium is regulated by the Pennsylvania State Insurance Commission. You can estimate the cost of the title insurance on the PA Title Insurance Calculator. PA Title Insurance Calculator

Underwriting Fee*
Some lenders may charge an underwriting fee to defray the cost of processing your loan.

Well Inspection
The lender may require a well inspection (flow and/or purity) if the home is not serviced by a public water facility. And even if an inspection is not required, you should obtain one. Well systems can be very expensive to repair or replace.

ESCROW & PREPAIDS

Per Diem Interest
You will pay interest on the mortgage loan from the date of closing until the last day of the closing month. Here's the formula - mortgage amount X interest rate divided by 365 X the number of days in the month.

$100,000 x 6% interest rate = $6,000/365 days = 16.44 per day

Let’s assume you close on the first day of the month. You will pay interest from the date of closing to the last day of the month. For example, 16.44 X 30 days = $493.15. If you close on the 15th day of the month, the calculation is: 16.44 X 15 days = $246.58

Now at this point, I know what you're thinking . . . I'll close at the end of the month and save some money. But consider this. If you close on the 1st day of the month, and pay either 30 or 31 days per diem interest at closing, your 1st mortgage payment will be 60 or 61 days off. If you close on the last day of the month, your first mortgage payment will then be 30 or 31 days away. "Why"?

The reason is that your mortgage payment is made in “arrears”, in other words, when you make a mortgage payment, it’s for the PREVIOUS MONTH, not the current month. Let’s assume you close on June 1st, you will not have a mortgage payment in July, and your first mortgage payment is due on August 1st, because when you make the payment in August, it’s paying for July. It’s not like rent. Payment is for the previous month.

June – close
July – no payment
August – 1st payment (pays July)

It doesn’t matter which month you close in, you will not have a mortgage payment for the following month. Skip the month after closing, then your first payment.

Now let’s get back to per diem interest. You close on the 1st of June and pay $493.15 for interest from the date of closing until the end of June, now skip, July and your first payment is August first – 61 day from your first mortgage payment. Remember you paid June’s interest at closing, so you’re covered for June. No payment in July, now you’re 61 days from your first mortgage payment.

Now let’s see what happens if you close on the last day of June.

I think you get it.

Homeowners Insurance Policy
The lender will require a homeowners insurance policy to protect your interest and theirs. Makes sense.

Homeowners Insurance Escrow (two months)
You will see either 12 month insurance policy or a line entry that shows 14 months insurance. Here’s why. Let’s assume you close in January. The homeowners insurance policy that you pay at closing covers you from the closing month until next January. Each month as part of your mortgage payment, the lender will collect 1/12 of cost of the insurance policy and set that amount into an "escrow account", which is a fancy word for "savings account". The Lender will pay the insurance policy when it renews NEXT January from the "escrow account". The anniversary of your closing. Once again, you pay the insurance policy up front for the first year. During that year, the lender is collecting 1/12 of the homeowners each month so there’s enough to pay the policy when it renews NEXT year. Now here’s why the lender collect an extra two months. Your policy runs from January to December and the policy renews next January, however, you did not make a mortgage payment in January when you closed and you did not make a payment in February, so the lender will collect those two months at closing.

Mortgage Insurance Premium Escrow
The lender will collect two months insurance premiums because no mortgage payment is made for the month of closing and the following month.

Real Estate Tax Escrow
Let’s assume you close July 1st and you’re annual real estate tax bill is $1,200 (you wish). You do not have a payment in July, your closing month, no payment in August, you skipped that month. Your first payment is due in September. The lender collected $100 in September and $100 in October, November and December. At he end of the year, the Lender has a total of $500 in savings to pay your tax bill, but if your tax bill is due in January - $1,200, the lender will collect the missing $700 at closing.

Real Estate Tax Proration
Once again, let’s assume you close July 1st and you’re annual real estate tax bill is $1,200 and the seller has paid all of the real estate taxes for the year. At closing you will reimburse the seller for the months that you own the house. July – December, or $600. If the seller did not pay the real estate taxes for the time he occupied the home, the seller you reimburse you. Everyone pays their fair share. Real Estate Tax Proration Calculator

FHA/VA Funding Fee
For the lack of a better term, think of the funding fee as a slush fund. In the State of Pennsylvania, we pay an uninsured/under insured fee on our auto policy. The reason of course is because there are drivers who do not have auto insurance or are under insured. So we all chip in to cover the unfortunate person who has an accident with these drivers. HUD/FHA and the VA have a similar concept. Each applicant pays at closing or finances this fee. Now when a lender forecloses on an FHA or VA mortgage, the lender seeks repayment for the loss from this Funding Fee slush fund, again for lack of a better term, but you get the point. The lender is not totally indemnified, they’re paid a percentage of the loss. Once the lender is paid off, HUD or the VA take ownership and resells the house. The funding fee calculation is as follows:

FHA
Sales price – down payment X 2.25% (30 year mortgage, will vary with term)

VA
Sales price – down payment X funding fee. The VA funding fee varies depending on service eligibility (active duty or reservist). Down payment percentage and whether the vet had a previous VA mortgage.

Commentary:
If you're a politician reading this, why is the VA funding fee so high, as much as 3.3% of the base loan, when the funding fee is 1.75% for an FHA loan?  Are there that many more defaults on VA mortgages?  If so, I don't see it.  Also, why is the reservist who serves in Iraq or Afghanistan paying a higher funding fee than the active duty vet pulling duty in South Florida?  Doesn't seem right?

Here's a link to HUD/FHA's home buying page - HUD/FHA Buying a Home