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What is the Pad Fee in My Closing Costs?

It looks suspicious. A $500 fee called Pad on your Closing Document. What’s that for and is it an outright rip-off? Several people have asked, so here is the answer.

The escrow agent (or attorney closing agent) cannot be short to close when it comes time to wire out funds. If they are even one dollar short, it will delay your closing, which could be disastrous for both the buyer and seller.

And in case you’re wondering if they’d really delay closing a home loan for a mere dollar, the answer is yes. I saw a loan fail to close because it was 17 cents short. (The home buyer’s  cashier’s check was missing 17 cents, so there were not funds to close. No one noticed it until after the signing. The escrow company would not kick in the pennies nor allow the loan officer to do so. The home buyer had to drive back out to the escrow company and write a check for 17 cents.)

To prevent that from happening, some closing agents build in a safety reserve amount, which they call a pad. Typically, it ranges from $300 to $500. Then after closing, what remains of the pad — hopefully all of it — is refunded to the borrower.

I’ve been in the mortgage business since 1998, and I have never witnessed nor heard of a rip-off or closing agent theft regarding the pad. Personally, I’d rather see a pad and refund than go through a short-to-close scenario.

Coming up next time I will reveal some big rip-offs. Yesterday, I saved one home owner who is refinancing $893 in needless junk fees (in our consultation). Details about that to come.

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I am licensed to do mortgage loans in CA and WA,
NMLS # 1284134.


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