When getting ready to buy a house, you may already know to save for a down payment. However, it’s also a good idea to set aside some money for closing costs. On the day you close on your house, you’ll be responsible to pay the fees that make up your closing costs. These fees may include origination fees, appraisal fees, and title insurance, and they typical cost between 3-6% of the purchase price of the home. While not all closing costs are the same, here are some examples of the types of fees that might make up your closing costs.
Your lender might charge a fee to process your mortgage application.
During the home buying process, an appraiser will need to come and evaluate the value of the property. The appraisal fee covers this service.
Some states require a closing attorney to handle the paperwork. If you end up with a closing attorney, you may see an attorney fee in your closing costs.
A closing fee is paid to whoever performs your closing, whether it is an attorney, escrow company, or title company.
You will find a courier fee in your closing costs should your lender charge for the delivery of your mortgage documents.
Be aware that the lender may charge fees to cover the cost of pulling your credit report and monitoring your credit along the way in case of any changes.
It’s possible that your lender will want you to put money into escrow. This is often two months of property tax and mortgage insurance payments.
If you’re getting an FHA loan, you will be required to pay an upfront mortgage insurance premium.
Typically, lenders require prepayment of your first annual homeowners insurance premium.
Some lenders charge an origination fee while others don’t. Those who don’t typically have higher interest rates to offset the cost of not charging an origination fee. An origination fee covers the lender’s administration costs of processing your loan.
Points, or discount points, are an optional upfront payment you can give to the lender to reduce your interest rate and lower your monthly payment. One discount point is equal to 1% of the loan amount.
You may be charged for the interest that accrues between the closing date and the date of your first mortgage payment.
You may have to make a Private Mortgage Insurance (PMI) payment at closing if your down payment is less than 20%.
You may have to pay property and school taxes that accrue from the closing date to the end of the tax year.
The lender may charge you a fee if you were guaranteed a certain rate for a specific amount of time.
This is typically paid by the seller and is usually 5-6% of the home’s purchase price, although it can be negotiated.
A recording fee is charged by the local government to fund the recording of the purchase in its public records.
This will be charged at closing if you had to use a surveying company to check property lines and confirm the property’s boundaries.
Title insurance offers protection against any disputes or problems around the property’s title.
The title company will charge this fee in order to analyze deed records to confirm ownership.
This is what you pay to transfer the property title to you.
While USDA loans don’t have mortgage insurance the way other loans do, they do have their own version of insurance. This comes in the form the guarantee fee which is 1% of the lean amount.
VA loans usually require a funding fee in closing costs which is a percentage of your loan amount and depends on how much the down payment is. Those who are exempt will not need to worry about this cost.
Ultimately, closing costs are unavoidable. However, not all lenders are the same when it comes to which fees are included. Plus, some costs can be negotiated. When it comes to purchasing a home, we are on your side. If you have any questions throughout the process – even at closing – we will be here to help you understand and make you confident in your mortgage process. Contact us now to learn more.
Homestead Funding offers exceptional customer service and a convenient mortgage process. Whatever your financing needs, our goal is to exceed your expectations.