A point is a fee equal to 1% of the loan amount. A 30-year, $150,000 mortgage might have a rate of 4% percent, but come with a charge of 1 point, or $1,500. A lender may charge 1 or more points. There are two kinds of points: discount points and origination points.
Think of discount points as pre-paid interest, which helps the borrower. Paying into this will pay down the interest rate. And though it helps, you are not required to pay discount points. It’s an option that you have as a borrower. However, the lender wins if you don’t stay in the home long enough to break even on the pre-paid interest. Typically, if you aren’t planning on staying in the home for 5 years or longer, don’t pay discount points. And it is also tax-deductible.
Origination points are another form of pre-paid interest that benefits only the mortgage broker. You will see this fee if you use a lender who is offering you par pricing but includes this fee as their compensation. This fee can be negotiable, and there are many brokers that will do a loan with 0 origination fees. However, if you are a high risk borrower with bad credit and undocumented income, you may need to pay this fee, because the lender will need to do much more work to get your loan approved.
- Underwriting Fees: Nearly all banks and brokers have an underwriting fee. This fee is typically around $500.
- Credit Fee: Brokers and banks get credit reports for very little cost because they are ordering in bulk. Charging you $50 for a credit fee is just another way to increase their bottom line. The less fees the better, processing and underwriting are truly the only legitimate charges.
- Appraisal Fee: This fee is necessary, but make sure it’s in accordance to what you’re buying. The fee should range from $395-$800 depending on the type of appraisal. If you are buying an investment property, over $1M with three units, your cost for the appraisal will be much greater than if you were to purchase a single family, owner occupied home under $500K. Also, you are entitled to a copy of the appraisal, because you purchased it.
- Title Fees: There are title fees associated with every loan that is closed, whether it’s an attorney or a title company. But, you can shop around for title companies to see who has the cheapest fees. Generally, they don’t differ too much, and note that if you pick an independant company they often charge a sub-escrow fee to use a different escrow company, and the escrow office is EVERYTHING when it comes to service. If you pick a lousey escrow officer due to wanting a ‘cheap fee’, you could pay greatly in the end. Also, typically if you’re purchasing a home, the seller almost always chooses the providers for both title and escrow.
- Doc Stamps/Courier Fees: These are fees that everyone pays to close a home.
- Tax-related service fees
- Escrow Fee
- Recording Fees
- Notary Fee
Adding It All Up
With all of this data, add up the costs and fee to determine your total cost. This is referred to as your non-recurring closing costs or NRCC’s.