Understanding Home Mortgage Loan Closing Costs
Mortgage closing costs include a long list of fees for the services and expenses required to finalize a mortgage.
You’ll have to pay closing costs whether you purchase a home, refinance or buy a second mortgage for your currently home.
Most of the closing costs fall on the buyer, but the seller also has to pay a few, such as the real estate agent’s commission.
Average closing costs for the buyer normally between 2% to 5% of the loan amount. If the mortgage lender allows,
you may be able to fold the closing cost into the loan and finance through them. Otherwise, you will have to pay them out-of-pocket as a one-time expense.
While hunting for a mortgage, you can always compare from different mortgage agents and negotiate some of the fees. In some states, counties and cities offer
low-interest loan programs or grants to help first-time home buyers with closing costs. Check that with your local government office.
Your mortgage lender is required to outline your closing costs in the loan estimate you receive three days after applying and in the
closing disclosure document you receive three days from loan settlement and prior to making the big commitment. Review them very closely and ask questions.
The following are the fees that the mortgage buyer’s closing costs can include:
- Property-related fees
- Annual assessments fee: If your condo or homeowners association requires an annual fee, you most likely have to pay it upfront.
- Home appraisal fee: On average, the cost of a home appraisal by a certified professional appraiser ranges between $300 and $400.
- Home inspection fee: The average home inspection fees range from $300 to $500. If the inspection turns up troubling results, you
may be able to negotiate a lower sale price or back out of your contract if you and the seller can’t come to an agreement on how to fix the issues.
- Homeowners insurance premium: Your mortgage lender requires you purchase homeowner’s insurance before settlement. Some condo associations include
insurance in the monthly condo fee. The amount varies.
- Property taxes: Buyers normally pay two months’ worth of city and county property taxes at the closing.
- Mortgage Loan-related fees
- Application fee: The cost of processing your request for a new loan and includes costs such as credit checks and administrative expenses. The application fee varies.
- Assumption fee: If the seller has an assumable mortgage and you take over the loan, you may be charged a variable fee based on the balance.
- Attorney’s fees: Some states require an attorney to be present at the closing of a real estate purchase. The fee varies.
- Discount points: The cost of one discount point equals 1% of the loan amount. Generally, paying points is worthwhile if you plan to stay in the home for a long time.
- Government-backed loan fees: If your loan is insured by the Federal Housing Administration, you pay FHA mortgage insurance premiums; if it is guaranteed by the Department
of Veterans Affairs or the U.S. Department of Agriculture, you pay guarantee fees. In addition to monthly premiums, the FHA requires an upfront premium payment of 1.75% of
the loan amount. The USDA loan upfront guarantee fee is 1%. VA loan guarantee fees range from 1.25% to 3.3% of the loan amount, depending on the size of your down payment.
- Loan origination fee: Also known as an underwriting fee, administrative fee or processing fee. The loan origination fee is a charge by the lender for
evaluating and preparing your mortgage loan. This can cover document preparation, notary fees and the lender’s attorney fees. It varies around 0.5% of the total loan amount.
- Mortgage broker fee: The broker commission averages from 0.5% to 2.75% of the home’s purchase price.
- Mortgage insurance application fee: If you make a down payment of less than 20%, you normally have to get PMI insurance. The fee varies.
- Prepaid interest: Most lenders require buyers to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date.
- Upfront mortgage insurance: It varies from 0.55% to 2.25% of the total loan amount. Some lenders require borrowers to pay the first year’s mortgage insurance premium upfront, while others ask for
a lump-sum payment that covers the life of the loan.
- Title fees
- Title search fee: A title search is conducted to ensure that the seller actually owns it and that there are no outstanding claims or liens against
the property. Title search fees are about $200, but vary among different region. The search fee may be included in the cost of title insurance.
- Title insurance: Most lenders require lender’s title insurance; It protects the lender in case there’s an error in the title search after it’s sold.
Coverage lasts until the loan is paid off. You should also consider buying title insurance to protect yourself after closing. The owner’s coverage lasts
as long as you or your heirs own the property. The owner’s title insurance policy is about 0.5% to 1% of the purchase price, according to the American Land
Title Association. Whether the buyer or seller pays for title insurance varies by region.