Closing Costs
When you close or finalize a mortgage there are many fees, taxes and insurance costs that you will need to pay. These are called closing costs.
The amount of money you will need to pay in closing costs will very. It depends on several factors. Taxes change depending on your location. Realtors, attorneys and banks can all charge different fees. But in general closeting costs run between 3% to 6% of the total mortgage amount.
That means if you are taking out a mortgage for $100,000 then your closing costs will be around $3,000 to $6,000. By law (The Real Estate Settlement Procedures Act) lenders are required to give you an estimate of the closing costs within three days of receiving your application
There are many fees that comprise closing costs. And you should look over all of the closeing costs carefully. Remember that nothing is set in stone. You should always try to convince or negotiate with the lender to pay a fee or just drop it entirely. You could also negotiate with the seller to see if they will pay some of the closing costs.
Closing costs for a mortgage fall into three main categories, the cost of the loan, fees for transferring ownership and taxes.
The following is a list of mortgage closing costs:
Processing fee
This is a fee that the bank charges for processing the mortgage. This fee usually includes application and credit check fees. Remember these fees are not the same with each lender. You should always shop around. In general the processing fee is between $400 and $500.
Appraisal fee
This is the fee the appraiser. The appraiser is an independent agent who gives an opinion on the value of the house. This opinion is used to confirm the value of the house. This fee is usually around $300
Origination fee
This is a fee that a lender may charge on top of an application or processing fee.
The origination fee is to pay for additional work involved in preparing your mortgage. It is not always part of the closing costs so make sure you ask your lender about this fee.
Discount points
A discount point is either paid when your mortgage is approved or when you close on the mortgage. Discount points can save you a lot in interest payments. For more information on discount points visit our section on points.Document preparation fee
This is a fee for preparing all of the documents required for the closing. This fee can be a flat rate or on occasion a percentage of the loan (usually less then 1% of the mortgage). This fee can also be a part of the attorney or the application fee.
Attorney fees
The fees for both the lenders and borrowers lawyers. This includes the cost for the creation of documents and to make sure that every thing has been done right. The closing attorney will collect all fees; pay any taxes and outstanding bills, pay the closing fees and make sure that the seller receives there money. Attorney fees can range from $500 to exceeding $1500.Home and pest inspections
In most cases the lemder will require that there be a home inspection. Home inspections make sure that the home is in good shape and free insects.Homeowner's and hazard insurance
In most states your will have to have your insurance policies in place at the time of closing. You will also be required to pay the first year’s premium up front. These policies will protect you and the lender if there is any damage to the house.
Private mortgage insurance (PMI)
If the down payment on the house is less then %20 of the principle you will have to purchase private mortgage insurance (PMI). Private mortgage insurance (PMI) protects the lender incase you fail to make your payments. Visit our section on Private Mortgage Insurance (PMI)) for more information.Surveys
Surveys are done to make sure that there have been no changes to the property since the last survey. Changes could be new structures or encroachments on the property. Survey fees are usually between $250 to $500.
Prepaid interest
In some cases your first mortgage payment may not be due for a full month. Though the interest on your loan will begin on the day you close on your mortgage. The amount of interest that is created during the time you close on your mortgage and the time of your first payment will be due at closing. This means you pay the interest up front. One way to reduce the amount of prepaid interest is to plan the closing for the end of the month. This way there will be less time between the closing and your first payment and thus reduce the prepaid interest.Deed recording fees
This is the cost to have the deed and mortgage recorded.© 2007 Scottie Watts