Purchasing a home, whether it’s a traditional transaction or an REO sale, involves more money up front than just the down payment. The sum of these fees are called closing costs. Closing costs usually range between 3% to 6% of the purchase price of the home and are always on top of the price of the property.

Closing costs can be broken into three categories of fees. The fees that a borrower may incur during the closing process can be divided into three categories:

• Lender fees
• Third-party fees
• Prepaid costs

Lender Fees. Lender fees are the fees that lenders charge to process, approve, and make the mortgage loan. Examples of these fees are origination and application fees.
A mortgage application fee is what the lender will charge you for doing business with them. This fee is usually non-refundable. There are cases where this fee is waived, but that would be entirely up to the lender.

There’s also a mortgage origination fee. This is a fee that lenders charge to ‘start’ the loan process. Most lenders charge 1-2% of the loan. So, for example, a loan of $100,000 may cost you a mortgage origination fee of $1,000. This fee is negotiable if your loan is being processed through a mortgage broker. However, when dealing with an REO or bank owned purchase, this fee is usually not negotiable.

Third-party Fees. These are fees that the lender will incur from outside sources and later pass on to the borrower. Some third-party fees include:

• Document preparation fee
• Loan underwriting fee
• Tax service fee
• Notary fee
• Wire transfer fee

Many of the above are called ‘garbage fees.’ In order to avoid paying extra fees, ask your lender for a Good Faith Estimate of what you expect to pay at closing. This estimate should outline everything you could be charged for. You can monitor this estimate for changes in the weeks leading up to closing.

Prepaid Costs. These are costs collected at closing such as:

• Homeowner’s insurance – Usually, the entire first year’s premium is paid at closing.
• Prepaid interest – This is due to the lender on the date that the funds are dispersed.
  Real estate taxes

Remember that some of these fees are not negotiable when purchasing an REO property. Visit GoHoming.com, where you can find great deals on REO homes and where all fees are displayed.

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