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LENDER CLOSING COST DEFINITIONS
ADMINISTRATION FEE
Often this fee will be charged in lieu of an underwriting and/or document preparation fee.
AGGREGATE ADJUSTMENT
Federal controls which increase or decrease impounds collected to fall within federally mandated limits.
APPLICATION FEE
Often non-refundable, this fee is charged by the lender to cover a portion of the cost of processing a loan application.
APPRAISAL FEE
A professional opinion of the market value of a property. Sometimes, an appraisal value may be dependent upon certain improvements or repairs being made.
ASSIGNMENT FEE
A fee charged by the lender to transfer the beneficial interest from one company to another (ie. loan servicing company).
ASSUMPTION FEE
This is a fee which is charged when a buyer “assumes” or takes over the responsibility of paying the seller's existing mortgage loan.
CREDIT REPORT
A fee covering the cost of obtaining a credit report which reflects your credit history. The lender uses the information in a credit report to help determine whether to approve your loan and how much money to lend you.
DISCOUNT POINT(S)
An amount paid to the lender when a loan is originated to account for the difference between the current market-determined cost of interest and the actual lower interest rate of the mortgage. Inmost cases each point is equal to one percent of the original mortgage amount.
DOCUMENT PREPARATION
This is a separate fee that some lenders charge to cover the cost of preparing loan papers.
FHA FINANCING
A loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with FHA regulations. FHA requires that the property being purchased meets with certain minimum standards. This mortgage may be easier to qualify for than a conventional mortgage, but it also has a lower maximum loan limit that varies based on the average cost of housing in a given region. FHA loans require the borrower to pay mortgage insurance premiums (MIP) if the down payment is less than 20%. Fixed and adjustable rates are available with FHA loans.
FINANCIAL INDEX
An agreed upon basis for making interest rale changes on an adjustable rate mortgage. One example of a financial index would be the cost of U.S. Treasury Bonds. The interest rale for a fixed rate loan does not change during the entire term of the loan.
FLOOD CERTIFICATION FEE
A fee charged by a third party hired by the lender to determine if the subject property is in a federally designated flood zone.
FLOOD INSURANCE
Insurance that compensates for physical damage resulting from flooding. It is required for properties located in federally designated flood areas.
FRONT END RATIO
The proportion of a buyer’s income that the lender will allow for principal, interest, taxes and insurance on a properly. Used in the evaluation of a loan application.
IMPOUND ACCOUNT
A separate account for accumulating the portion of your monthly payment that will pay future taxes, insurance, fees, assessments and so forth. Depending on your lender and the financing you select, an impound account may be required.
INITIAL INTEREST RATE
The interest rate charged for the first 6 or 12 months of an adjustable rate mortgage (before the first interest rate adjustment).
INTEREST RATE CAP
Limit on the amount an adjustable rate mortgage may increase or decrease during specific intervals and over the term of the loan. This safeguard protects the buyer from dramatic changes in monthly payments.
LENDER’S INSPECTION FEE
This charge covers inspections, often of newly constructed housing, made by employees of the lender or by an outside inspector.
MORTGAGE BROKER FEE
A fee charged by the mortgage broker for administrative costs in processing the real estate loan.
MORTGAGE INSURANCE
Both private and government mortgage insurance protect the lender against default by insuring repayment of the loan and enables the lender to make loans which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the down payment is less than 20% of the sales price. Mortgage insurance should not be confused with mortgage life, credit life, or disability insurance which are designed to payoff a mortgage in the event of the borrower's death or disability.
MORTGAGE INSURANCE APPLICATION FEE
This fee covers the processing of application(s) for mortgage insurance.
MORTGAGE INSURANCE PREMIUM
Fee for private or government mortgage insurance which protects the lender against default and enables the lender to make a loan which the lender considers a higher risk.
NOTARY FEE
This fee is charged by a Notary Public for acknowledging the identity of the persons executing a document.
ORIGINATION FEE
A fee charged by the lender for administrative costs in processing the real estate loan. Often expressed as a percentage of the mortgage amount. Not to be confused with an application fee. P.l.T.I.(H.) Stands for principal, interest, taxes, insurance and (homeowner’s association dues), the components of buyer's monthly obligation.
PAID OUTSIDE OF CLOSING
(“POC”) These are fees usually paid by the borrower before closing/settlement (ie. credit report, appraisal). Other fees such as those paid by the lender to a mortgage broker or other settlement service providers may be paid after closing/settlement. These fees are usually factored into the interest rate or other settlement charges. They are no an additional cost to buyer.
PROCESSING FEE
A fee charged by the mortgage broker or lender for obtaining all documentation necessary to complete their file for submission for loan approval.
SERVICE RELEASE PREMIUM
This is paid to the lender by the servicing company when they are going to be the servicing agent for the loan.
TAX SERVICE
A fee charged by a third party hired by the lender to determine if property taxes have not been paid when due.
UNDERWRITING FEE
A fee charged for the process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.
WAREHOUSING FEE
This fee is charged by the lender’s bank for reservation or usage of their warehouse lines to fund buyer’s loan.
WIRE FEE
A fee charged by a bank to transfer money electronically.
VA FINANCING
A loan guaranteed by the Veterans Administration (VA), made to a qualified veteran, and originated by an authorized lender on an approved property. Fixed and adjustable rates are available with VA loans. The VA charges the borrower a funding fee, which can be financed, in addition to usual and customary lender fees.
YIELD SPREAD PREMIUM
This is paid to the mortgage broker by the lender for placing the loan with the lender.
