When you're finally ready to finalize the purchase of a new home and have a mortgage ready to be signed, you may be responsible for paying up to several thousands of dollars in fees associated with the mortgage closing upfront.
Any professional work or documents that need to be prepared to finalize the purchase of your new home may increase your closing costs substantially. In some cases the seller may agree to cover some, if not all of the closing expenses. Otherwise, you will be responsible to pay these fees at closing, which range from 3 – 6 percent of the total mortgage loan price, out-of-pocket. Fortunately, you may be able to deduct closing costs from your yearly taxes if you pay the closing costs in a lump sum payment.
Some of the more common closing costs you may have to pay include:
Processing Fees
Application fees and fees for accessing your credit report when you first apply for a mortgage. These fees are usually nonrefundable if you aren’t approved for the loan or don’t make use of the loan. Loan processing fees may cost anywhere from $350 - $550.
Appraisal Fees
The fees charged by a professional appraiser who inspects the home before purchase to verify its market value. These fees can’t be deducted from your yearly taxes. Appraisal fees may cost anywhere from $300 - $400.
Origination Fees
A flat fee or percentage of the mortgage loan value charged by the lender for all the costs associated with prepping the mortgage. This fee is typically 1 percent of the loan amount. For example, you would pay $1,000 in origination fees on a $100,000 mortgage. Some online lenders have eliminated this fee.
Discount Points
Points are the monetary equivalent of a percentage of the mortgage. For example, 3 points is the same as 3 percent of the mortgage price. If you have extra money you can pay the mortgage lender discount points, which will lower the interest rate you’ll pay throughout the life of the loan.
Document Preparation Fees
The costs of all loan papers generated and processed throughout the loan process.
Attorney Fees
Any costs related to attorney representation of both the buyer and seller. You may be responsible for you own attorney’s fees as well as the seller’s attorney fees.
Title Insurance Fees
A one-time fee you pay to insure no monetary losses caused by title defects, liens against the property or other title problems regarding the property that may not have been resolved before you purchased your home. The insurer will search public records, fix any potential title problems the can be fixed before the title is issued or exclude the items in question from your policy. You may pay more than $400 for every $100,000 in home value for title insurance.
Home and Pest Inspection Fees
Fees that may be required by the lender to pay for inspections to verify your home is structurally sounds and free of any insect infestations.
Insurance Fees
The premiums you must pay to open homeowner’s and hazard insurance policies on your home. These premiums must be paid by closing.
Private Mortgage Insurance (PMI) Fees
Fees you will probably be responsible for if you are making less than a 20 percent down payment and need mortgage insurance. Private mortgage insurance protects lenders against loss if you default on your mortgage loan.
Survey Fees
Fees the mortgage lender may charge to have a surveying company verify the boundaries of the property you will be purchasing.
Prepaid Interest Fees
All the interest that accrues on your mortgage before the first payment must be paid in advance when you close on your loan.
Assessment Fees
Additional fees you will pay if you buy a condo or property governed by an association.
It is important to get full disclosure of all related closing costs before you’re ready to finalize your mortgage. Otherwise you may end up with a very costly surprise when it comes time to sign the dotted line.
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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information, and active link are included.
