Mortgage loan closing is a time many homeowners look forward to. It’s the time when all the final documents are signed and the seller finally hands over the keys to your new home. Closing is one of the last steps in the home buying process. Closing can also be a scary time. There are several different costs involved with the process and it’s important that you’re familiar with all of them. Since there are so many different costs, there are several points of negotiation, which can allow you to reduce your closing costs.
Mortgage loan application fee
The lender or mortgage broker charges an application fee between $65 and $640 for the cost of processing your loan. Your application fee also includes the cost of accessing your credit report and the credit report of any co-borrower.
Loan origination fee
The lender also charges a mortgage loan origination fee for the cost of preparing your loan. The fee might also be called a processing fee, underwriting fee, or an administration fee. It pays document preparation fees, lender’s attorney fees, and other charges. This fee can ranges from $1,984 to $3,105 depending on your down payment. Paying a higher down payment can lower your mortgage loan origination fee.
Points
Your lender may charge an upfront fee, called points, which you can use to lower the interest you pay on your loan. One point is 1% of the loan amount or $1,000 for every $100,000 you borrow. You can choose to pay your points at closing or they can be included in your mortgage loan. You may be able to get your seller to pay some or all of your points.
Appraisal fee
The lender will require you to have your home appraised to make sure it’s worth the amount you’re borrowing and not less. Your appraisal fee might be included in the application fee or it can be paid separately to the appraiser. Appraisal fees range from $263 to $444.
Home inspection fee
You’ll want to have your own home inspection to make sure the home and property are in good condition, but the lender will also require a home inspection. These typically cost between $300 and $500.
Prepaid interest
Fortunately, your mortgage payments won’t begin for 6 to 8 weeks after closing. But, your lender wants you to start paying interest immediately after closing. The amount of interest you must prepay depends on the day of the month you close, your interest rate, and your loan amount.
Homeowner’s insurance
The lender will require you to have homeowner’s insurance at closing. Your insurance company might require payment at closing. The amount of your interest depends on your home value and coverage amount, but it generally between $300 and $1,000 per month.
Flood determination fee
If you live in a flood hazard area, you can’t get a mortgage loan unless you have flood insurance. The lender sometimes charges a fee to figure out whether the home you’re purchasing is in a flood area. This fee ranges from $10 to $16 and may be included in the application fee. Note: this is not the cost for flood insurance.
Escrow funds
Your lender may require you to put money in an escrow fund to cover your property taxes and homeowner’s insurance (and flood insurance). The lender keeps this money in the escrow account and uses it to pay your taxes and insurance when they are due.
You must have these costs at mortgage loan closing or you may not be able to close on your home. Your lender can help you figure out your total closing costs. Work with the lender to reduce your closing costs. You may be able to get the seller to pay some of the closing costs.
