When the lender deducts its fees from the proceeds rather than wiring gross, the disclosure and the money stop agreeing
There are two ways a lender can handle its own fees at a closing.
It can wire the gross loan amount to the settlement agent and let the agent pay the lender's fees back out of the proceeds. Or it can deduct those fees before it wires anything, and send the net. Both are ordinary. The second one is where closings stop balancing.
A charge on a settlement statement normally means two things simultaneously: this cost exists, and somebody has to fund it. Cash to close is built on that second meaning - it sums what the borrower owes and subtracts what has been provided.
A netted fee breaks the pairing. The cost genuinely exists, and it must be disclosed, because the borrower is paying it. But the borrower is not bringing money for it, because the lender already took it out of the proceeds before the wire arrived. Count it in cash to close and the borrower is asked to fund the same fee twice - once through the reduced wire, once at the table.
This is the distinction to hold onto, because the form asks two questions that look like one:
Netting a charge does not move it between columns and is not a way to say somebody else paid it. The borrower still paid it. The disclosed amount stays exactly as it was on the printed form. What changes is only whether that amount is counted in the cash the borrower has to produce.
The authority for what is netted is the lender's funding worksheet, not custom or assumption. If the wire is short against the gross loan amount, the difference is netted charges, and they should be identifiable line by line.
The ledger is where netting proves itself. Netted charges do not generate a disbursement, because no money moves for them at the table - the lender has already kept it. The proceeds figure is correspondingly reduced: gross loan amount minus everything netted, which should equal the wire that actually arrived.
That gives a clean check. If the settlement account does not balance, or cash to close is not what the borrower was told to expect, the netting flags are the first place to look - a charge netted that should not have been, or one that should have been and was not, moves the borrower's bottom line by the full amount of the fee in one direction or the other.
The lender deducts certain fees from the loan proceeds before wiring, and sends the net amount rather than the gross loan amount. The settlement agent receives less than the face amount of the loan, with the difference representing fees the lender has already withheld.
Yes. The borrower is still paying the fee, so it must be disclosed at its full amount. What changes is only whether it counts toward the cash the borrower brings to closing, since the funds were already withheld from the proceeds.
No. Netting does not change who bears the cost, and the charge stays in the borrower-paid column if the borrower is paying it. Netting only records that the borrower is not funding it at the table. If another party genuinely pays a charge, it belongs in that party's column instead.
Typically origination fees, discount points, lender-paid third-party services being recouped, and lender charges such as underwriting and processing. The lender's funding worksheet is the authority for exactly which charges were deducted.
Incorrect netting is the most common cause. A charge netted that should not have been, or not netted when it should have been, shifts the borrower's cash to close by the full amount of that fee. Check the netting against the lender's funding worksheet before looking for an arithmetic error.
Prorations, prepaids, recording charges and payoffs are calculated on the matter and flow straight onto the Closing Disclosure, the settlement statements and the disbursement ledger.