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Home Purchase Costs:
The Closing Statement (aka HUD-1)

There are some pretty common items to be seen on your HUD-1 settlement statement (a complete itemized listing of the costs and fees that you are responsible for that are associated with your purchase). These can include settlement costs, discount points, and other fees. It is important to recognize that "closing costs" are not just numbers pulled out of thin air - 99.9% of the time. That's why we want you to know what you should expect to see, so you'll know when something out of the ordinary pops up. Remember, if something seems off or is clearly different from what you were told, it can never hurt to ask. Mistakes happen and so do things that aren't by accident. No one is offended if you catch an honest mistake, a math error, a transposed number or a duplicate charge. It doesn't happen often, those mortgage and title company people are pretty sharp, but be careful and be alert - it will probably save you some money.

There are many fees - closing costs - on your HUD-1 that have nothing to do with your Broker. There are state and county taxes. Often there are also state, county and even city transfer fees, Chicago's, for example, are pretty hefty. There are recording and, often, endorsement fees.

Some others include, title search, exam, title insurance, overnight, closing and recording fees for the title company. The appraisal, termite inspection and home inspection are separate items also, and even though you or the seller paid for them already, they'll be listed on the HUD-1 as pre-paid.

Another section on the HUD-1 is for your escrow items - property taxes and home owner's insurance. Sometimes, you will receive credit from the seller that will make an initial deposit to your escrow accounts so you will have the right escrow balance when the next property tax or insurance bill comes due. Other times you'll have to provide the funds for this account if the seller reduced the final sales price to account for future property tax payments. This would be specifically spelled out in your purchase contract.

The fees that are associated with your broker and lender may include: an application fee, a processing fee (and sometimes - a lender processing fee). Tax service fees, flood search fees, credit report fees - things that every lender requires of your broker (all designated acceptable by FHA, too). Depending on your loan type and terms, you may see an origination fee - what your loan advisor gets paid from. Discount points - pre-paid interest that brings your rate down. Depending on what day of the month that your loan closes, you will see some pre-paid interest to pay for the period from the day of closing to the first of the next month.

You may also see something called a yield spread premium or YSP listed on the HUD. Yield Spread Premium is what your lender is paying your broker for bringing your loan to them, which means - it is not a cost charged to you as far as your HUD-1 bottom line is concerned. Banks and Mortgage Bankers also receive YSP, but the law does not require them to reveal how much the lenders are paying them.
Yield Spread Premium can be used to your advantage or not. A Broker can use Yield Spread Premium to offset your closing costs or to eliminate clsoing costs entirely. The trade off for doing this is a little higher interest rate to make up the difference. So whenever you hear the radio or TV ad tell you they have no closing costs, now you will know that they will be giving you a higher rate to make up for the closing costs.

The total expense for a mortgage depends on the interest rate, number of points, and other costs required to obtain a loan. To obtain the lowest rate offered, most mortgage companies will charge several points, and the total cost can run between three and six percent of the total amount you borrow. So, for example, on a $100,000 mortgage, the company might charge you between $3,000 and $6,000.

Again, some companies may offer zero points or even no closing costs at all - the trade off being: a higher interest rate - this may significantly reduce your initial costs, but your payments may be somewhat higher. This is a perfectly acceptable trade off for some people - the difference between shady and upfront, is whether or not your mortgage officer will make you aware that the trade off is happening.

Working with a reliable, professional mortgage broker or loan officer is key. Make sure you are working with some one who will make sure that you understand your options (yes, you have options) and what the trade offs are so you can make an informed choice that will serve you in the short and the long term.