When you purchase a home with a mortgage, you will need to pay closing costs which are fees charge by lenders and third parties. So, in addition to owing the lender the down payment (plus principal & interest if necessary) you will also owe these closing costs. Most of the time is is the home buyer who pays the closing costs, however this is something that can be negotiated into the initial contract.
It is important for you to be aware of these common closing costs so there are no surprises on closing day:
PROPERTY TAXES. Based on the month you close, property taxes will be pro-rated between you and the seller.
HOMEOWNER’S INSURANCE. You will be required to pay an entire year’s homeowner’s insurance (hazard insurance) premium at closing.
PREPAID INTEREST. Depending on the day of the month your loan closes, this charge may vary from a full month’s interest to just a few days’ interest.
PRIVATE MORTGAGE INSURANCE (PMI). Depending on the amount of your down payment, you may be required to put a certain amount for PMI into an escrow account.
TITLE INSURANCE FEES. These fees cover both the buyer’s title policy and the lender’s title policy. The title company may also charge fees for a title search, settlement/closing fees, recording fees, notary fees, document preparation, and title examination.
ADMINISTRATIVE, LOAN PROCESSING, AND UNDERWRITING FEES. These fees offset the cost of processing your loan request, obtaining all the necessary documentation, and evaluating your loan application package.
Other costs that you should be familiar with but do not apply in all cases:
LOAN ORIGINATION FEE. This fee covers the lender’s administrative costs in establishing the new loan. It is generally expressed as a percentage of the loan amount.
LOAN DISCOUNT. Often called “points,” a loan discount is a charge used to allow a lower interest rate than the current market rate. One point is equal to 1% of the loan amount.
How much will you pay in closing costs?
Closing costs vary widely based on where you live and the property you buy. Closing costs often include the following:
- Credit report fee
- Loan origination fee
- Charges for any inspection required or requested by you or the lender
- Appraisal fee
- Discount points – fees you pay in exchange for a lower interest rate
- Title insurance
- Title search fees – pays for a background check on the title to make sure there aren’t things such as unpaid mortgages or tax liens on the property
- Escrow deposit – covers a couple months property taxes and private mortgage insurace
- Recording fee
- Underwriting fee
Source: Academy Mortgage & zillow.com
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