What Are Recurring and Non-Recurring Closing Costs?

Figuring out the cost to close on a home

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For decades, lenders used Good Faith Estimates to explain closing costs to homebuyers. These estimates, called GFEs for short, contained recurring and non-recurring closing costs. While some recurring and non-recurring closing costs were clearly defined, others remained murky. For example, nowhere on the GFE did it spell out the borrower's monthly PITI mortgage payment. Since the lender was not required to stand behind those numbers, they could be misleading and were inconsistent among lenders.

In an effort to provide more disclosure to borrowers, the federal government now (effective October 3, 2015) requires lenders to provide prospective borrowers with Loan Estimates.

Loan Estimate Explained

A Loan Estimate is a standard form provided to prospective borrowers by lenders. It provides very specific details about monthly mortgage payments. Unlike a GFE, a loan estimate provides estimated PITI and information about how borrowers' payments could change should interest rates increase in the future. Loan Estimates also provide information consumers should be aware of -- but might not remember to ask about -- such as prepayment penalties and whether negative amortization applies to their loans. Loan Estimates use simple language to explain loan terms. Prospective borrowers should note that a Loan Estimate, no matter how detailed, does not obligate them to apply for a loan with a particular lender.

Note that the law still permits GFEs for reverse mortgages.

Typical Closing Costs

Some homebuyers are shocked when they discover that homes often cost much more than the stated price. When you buy a car, for example, dealers don't tack on fees and extra charges. But buying a home is different.

While a buyer doesn't pay sales tax on a single-family residence or condo, a buyer does incur additional fees to get the loan and for processing the paperwork to buy a home.

The closing costs run about 3 percent of the sales price when the home is priced over $200,000, and a higher percentage applies when the price of a home is less than $200,000. Typical closing fees cover:

  • Impound/escrow account costs: Lenders may require that a buyer establish a reserve account held by the lender for future payment of taxes and insurance.
  • Lawyers and closing agents fees: The individuals who prepare the closing documents and deed charge a fee.
  • Title insurance policies: Title companies charge to issue title insurance that protects the borrower and the lender.

Non-Recurring Closing Costs

Fees that are paid once and never again are called non-recurring. These fees are one-time charges for such items as:

Recurring Closing Costs

Recurring fees are those charges that you will pay again and again.

They include such fees as:

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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