A Closing Disclosure includes a $1,450 origination charge, an $825 required title search from the lender-selected provider, a $640 lender-required survey from a provider the borrower shopped for outside the lender's written list, and $2,300 of prepaid property taxes. How are these grouped between Loan Costs and Other Costs?
Correct Answer
A) The first 3 are loan costs and the $2,300 is an other cost
A. The first three charges are Loan Costs; prepaid property taxes are Other Costs. Origination is one Loan Costs category; the required title search and required survey are settlement-service categories. Choosing the survey provider does not make a lender-required service an optional non-loan expense. Scope and exceptions: A survey purchased independently and not required by the creditor can be treated differently. On the Closing Disclosure, choosing a provider on the written list falls in Services Borrower Did Not Shop For. Loan Costs classification does not itself determine finance-charge inclusion or tolerance limits. Source: Section 1026.38(f)(1)–(3), (g)(2), (g)(4); comment 38(f)(3)-1 — https://www.consumerfinance.gov/rules-policy/regulations/1026/38/
Why This Is the Correct Answer
A. The first three charges are Loan Costs; prepaid property taxes are Other Costs. Origination is one Loan Costs category; the required title search and required survey are settlement-service categories. Choosing the survey provider does not make a lender-required service an optional non-loan expense. Scope and exceptions: A survey purchased independently and not required by the creditor can be treated differently. On the Closing Disclosure, choosing a provider on the written list falls in Services Borrower Did Not Shop For. Loan Costs classification does not itself determine finance-charge inclusion or tolerance limits.
Why the Other Options Are Wrong
Option B: Only the $1,450 is a loan cost; the other 3 are other costs
It wrongly excludes required third-party services.
Option C: All 4 are loan costs, since each is paid at the closing table
Payment at closing does not make property taxes Loan Costs.
Option D: The first 2 are loan costs and the last 2 are other costs
It misclassifies the required survey.
Exam Tip
Classify by the service and requirement, not merely who picked the provider.
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