Home Loan Modification - What Are Recurring and Non-Recurring Fees?

When it comes time to refinance or buy a house, it is essential to make yourself knowledgeable on the expense details associated with the closing costs and how you can possibly cut costs associated with your home loan.

There are two differing kinds of closing costs associate with a home loan.

1) Non-recurring costs, such as, application/origination costs and any costs charged by a third party.
2) Recurring costs, such as, prepaid costs and costs associated with escrow payments.

It is very important to peruse your GFE disclosure document. A GFE disclosure document is also known as a good faith estimate disclosure. Making sure you know what is said on this document is extremely important. If you do not take the time to peruse this piece of paper, you could be paying more than you need to be. Your GFE disclosure document is the same as the price sticker on something you are considering purchasing in a store.

The closing fees associated with a home loan include any and all origination fees, point fees, and fees from third party persons. The origination fees and point fees will account for approximately 1 to 3%. Keep in mind that this fee is somewhat negotiable. It is important to look around and compare from differing companies. If in your findings you see that a certain company has service that you would love to deal with but another company has lower fees, ask the preferred company to match to fees of the other company in order to get your business. Make sure that you have complete good faith estimates from each company before you begin the negotiations. One way you will be able to find out if your loan officer is good at his job is if he asks to see all the good faith estimates prior to negotiating anything with anyone. Seeing it in print assures the loan officer that what you say is true and that you didn't get confused on numbers.

Some of the other types of non-recurring fees will be fees charged by third parties for items such as, appraisals, credit report fee, title fee, processing fee, and so on. It is normal for these fees to total anywhere from $1500 to $2500. These costs are not negotiable. It is important to remember that there is no free appraisal out there. If a company offers a free appraisal to you, they are paying for it and offering you the discount as a special offer.

Prepaid and escrow fees are usually your taxes and your homeowners insurance premium. Keep in mind that prepaid and escrow fees are recurring expenses. These are to be paid again and again. Most will be on a monthly payment plan. Many times you can have these fees built into your home loan so that the payment is made at the same time with your mortgage payment. If you decide to go this way so it is paid together, you will need to set up an escrow account.

Your homeowners insurance and your property taxes will usually be paid for a six month period of time, in advance. When you make your mortgage payment and pay your taxes and insurance at the same time, that money will be placed in your escrow account. When the time comes for the payment to be made to the company, the money will be sitting there for payment to the insurance company and the Government. This can help you out in the long run about not having to come up with the money to cover these expenses all at once.

When you are close to the end of your loan's term, the mortgage company will request that you place a certain amount of money into your escrow account for future payments. The amount of money that you will be asked to place in this account will vary on what month it is and when you loan will end.

As you can see, the recurring fees are not negotiable because they are more like a payment instead of a fee that you will be charged for something. You will place your money into the escrow account and if you sell your house or refinance the remaining amount of your loan, your escrow account will be closed and any amount left in the account will be returned to you in the form of a check.

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