Borrowers ask Brokers, What are Closing Costs?

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As with any other product or service, financing a home purchase has a cost. Your clients should understand that, and Orion’s brokers are usually asked by new borrowers about the loan process, and about the expenses involved in buying or financing a home. We at Orion feel that the more your borrowers understand the process, and the costs involved, the better off they will be in knowing the value that a broker and Orion provide in their financing decision as we head into the spring buying season. So, let’s take a look at some basic closing costs!
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A “commission” is normally a six percent charge payable to the buyer and seller agents divided equally. “Loan origination” is usually, but not always, one percent of the total loan amount, also referred to as a “point” paid by the buyer although it may be split with the seller. There are often “loan discount points” (“points”) that may be given for reducing the interest rate. Paying multiple points will result in both lower principal payments, and a discount on the interest rate charged.

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Application Fees, Mortgage Insurance, and Prepaid Costs Explained

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Usually there are “application fees” charged by the lender ranging between $300 and $500 to process the loan. A lender’s inspection fee covers an independent inspector to verify new construction requirements if needed. A “mortgage insurance application fee” is only required if the buyer down payment is less than twenty percent of the home value.
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Interest that will be owed on the loan before the first payment will be handled in advance, and a “mortgage insurance premium can either be required paid in advance for year one or the entire premium due at closing. Flood insurance premiums and earthquake insurance require homes in traditional flood or earthquake zones to carry special insurance.

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Reserve Funds, Escrow Accounts, and Property Tax Costs at Closing

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“Reserve Account Funds” are a special escrow account set up with funds available to cover property taxes and homeowner’s insurance. Speaking of which, homeowner’s insurance, county property taxes, city property taxes, and mortgage insurance require collection of two months’ worth of premiums if there is an escrow account set up. Lastly, annual assessments are set up if required by homeowner’s association: often the fee may be included in the loan payment.
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Sometimes companies may try to hide fees in the interest rate. Put another way, instead of collecting a fee, the borrower will be asked to finance their property with a higher rate. Your clients should be careful! Orion’s AEs and brokers encourage borrowers to learn about the loan process by asking questions… We are happy to help walk our brokers through the fee structure.

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