Image courtesy of Flickr, Du Truong
Knowing about your third party closing costs can help you understand the total cost of your loan, and allow you to see what fees you can negotiate to reduce.
When you purchase a home or refinance an existing home loan, there will be multiple third party closing costs involved in your transaction. These third parties provide services that are necessary to make sure everything is in order and your transaction is closed properly.
Use our Closing Cost Calculator to get a good grasp of what you can expect to pay.
Your lender will pull a tri-merge credit report to qualify you for a loan. The tri-merge credit report displays your information from all three credit bureaus. You will get a copy of the report once issued.
A licensed appraiser is hired by the lender to determine the value of your home. The person buying the home or refinancing pays for the appraisal fee up front. The lender will use the appraisal report to approve your mortgage loan.
Expect a call from an appraisal management company or the appraiser directly to schedule an appraisal appointment.
Lenders hire courier services to deliver documents to the buyer, seller, and buyer's lender on short notices. Sometimes the documents need to be delivered overnight. However, technology is replacing paper by delivering documents electronically which is faster and less expensive.
Some regulations may require a lender to obtain original documents, which is when a courier service is necessary.
Lenders are required to obtain a flood certification for all loans, which are ordered from third party vendors to see if the home is located in a designated flood zone. If a property is in a flood zone than you are required to get flood insurance.
Some lenders will have third party vendors monitor or handle the payments of your property tax bills. Lenders use this service to prevent tax liens to the property resulting from missed payments.
This is a service fee for transferring incoming and outgoing funds. Funds could be sent to the previous lender, Title Company, and other parties involved in the transaction. Wire transfers are done electronically through the Federal Reserve Wire Network or the Clearing House Interbank Payments System. Wire fees are very common and necessary to the closing process.
When an appraisal or an inspection have discovered something that needs to be repaired before the loan can be issued, the lenders will order a final inspection to verify that the repairs have been completed.
A recording fee is charged to record your deed and the mortgage at the local court house or county recorder's office. Once the transaction is recorded properly, it becomes a legal document.
Before closing your loan, a licensed notary will need to verify that all documents are signed by the appropriate borrowers. Most notaries will meet you in person even if you're signing electronically in order to verify your identification and take your fingerprints.
Title insurance is required to protect the buyer from issues such as errors and omissions in deeds, mistakes in examining property records, and forgery. The title company makes sure there are no clouds on title or issues that may have a negative effect on ownership once the transaction closes.
Split between seller and buyer in a purchase transaction, escrow is a neutral third party that hold funds and handles the paperwork associated with the closing of the mortgage loan. They will make sure that all the funds are distributed to the correct parties.
Third party closing costs on mortgage loans vary among states and counties. The fees above are the average costs you should use as a general guide to educate yourself and manage your expectations when reviewing fees on a mortgage loan. More importantly, when you're reviewing your final closing costs, but don't understand why you are being charged for something- ask the lender to explain it to you.
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