Closing Costs Explained

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Closing Costs

Here is an overview of the types of closing costs you may incur on your loan. Some are one-time fees, while others reoccur over the life of the loan. When you apply for your loan, you will receive a Good Faith Estimate of Settlement Charges, and a booklet that will explain these costs in detail.

First, Determine One Time Fees

There are different types of closing costs you may incur on your loan. These types of closing costs are one-time fees you will pay at closing.

Loan Origination

  • Covers the lender’s administrative costs.
  • Often expressed as a percentage of the loan typically 1%.
  • You can obtain a loan with no origination fee and a slightly higher interest rate.

Loan Discount

  • Often called “points”
  • Adjust the yield on the loan to what market conditions demand.
  • One point is equal to 1% of the loan amount.

Appraisal Fee

  • Pays for an appraisal, which is a statement of property value
  • Cost a standard $300 to $450
  • Made by an independent fee appraiser

Credit Report

  • Covers the cost of the credit report
  • Run by an independent credit reporting agency
  • Usually about $60-$75

Title Insurance

  • There are two title policies: a lender’s and buyer’s
  • One protects the lender against loss due to defects on title
  • One protects you, usually is $200

Lender Fees

  • Should be disclosed by your mortgage lender at loan application
  • Vary dramatically from about $450 to $900

Then, Pay Upfront Costs

Now that you are ready to close on your home there are some upfront fees that need to be paid.

Prepaid Interest

  • Depending on the time of month your loan closes
  • May have to pay the maximum amount
  • May have to pay a few days’ interest

PMI Premium

  • May have to pay an up-front fee for mortgage insuranc
  • Protects the lender against loss due to foreclosure
  • May have to put a certain amount into a special reserve account held by the lender for PMI

Escrow Account

  • Account where your property taxes and property insurance will be held
  • Started with taxes approximately equal to two months in excess of the number of months that have elapsed this year

Lastly, Your Mortgage

So, you’ve got some ideas of what your loan might look like. Contact a lender to estimate your monthly mortgage payments. Not only will this help you budget and get prepared, it’ll help determine the price range for your home search.

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