Prepaid Finance Charges, per the Federal Reserve Board, are the costs of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. All prepaid finance charges directly affect the APR (Annual Percentage Rate) on a mortgage loan, whereas the rest of the closing costs do not. All prepaid finance charges are closing costs but all closing costs are not prepaid finance charges.
An example of a prepaid finance charge: in a cash transaction the cost of an appraisal is $300 but the same appraisal fee would be $400 in a credit transaction (one that involves a mortgage loan)—the difference of $100 would be a finance charge. Charges imposed uniformly in cash and credit transactions are not finance charges.
Here is a chart for common closing costs and finance charge:
| Fees paid by the Borrower | Exclude (Does not affect APR) | Include (Does afect APR) |
|---|---|---|
| Adminiistrative Fees (Include) | X | |
| Application Fee (not for appraisal or credit report) | X | |
| Amortization Schedule Fee | X | |
| Appraisal/Appraisal Review Fee/AVM | X | |
| Assignment Fee | X | |
| Assumption Fee | X | |
| Attorney Fee (Except for the portion that may be for the closing) | X | |
| Commitment Fee | X | |
| Courier Fees paid to lender (includes if paid to a third party) | X | |
| Credit Report | X | |
| Discount Points | X | |
| Document Preparation | X | |
| Escrow Waiver | X | |
| Final Inspection Fee (if performed by the original appraiser and is not required to complete a loan disbursement or draw) | X | |
| Flood Certification / Life of Loan Coverage | X | |
| Funding Fee (as on a VA or as a misc. fee) | X | |
| Hazard/Flood Insurance Premiums | X | |
| Inspections required to complete loan draw | X | |
| Interest Adjustment | X | |
| Mortgage Broker Fees | X | |
| Notary Fees | X | |
| Origination Fee | X | |
| Pest Inspection | X | |
| Points/Fees paid by Seller | X | |
| Private Mortgage Insurance & Renewals | X | |
| Processing Fee | X | |
| Realtor Fees | X | |
| Recording Fees | X | |
| Settlement/Closing Fee (Varies by lender and state) | X | |
| Survey | X | |
| Tax Escrow | X | |
| Tax Service Fee | X | |
| Title Co. Processing Fees (Insurance, Exam and Abstract) | X | |
| Underwriting Fee | X | |
| Well and Septic Inspection | X | |
| Wiring Fees | X |
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