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What Are The Closing Costs Based On For My Mortgage Loan?

By Jim Micheals

Ever wonder about what the closing costs are at the settlement time? Below is a complete break down of the closing costs for a mortgage loan.

With a mortgage loan involved in purchasing a house for the super majority of the home buyers, the real estate transaction process brings along many mortgage-loan related services that together help settle and close a mortgage-financed purchase. It’s more than handing over the check to the seller and the key to the buyer. Those services all entail certain fees and costs, which when added in total, are what your so-called closing costs are based on for your mortgage loan. Closing costs can break down as follows:

Various Fees and Costs Charged in Relation to Your Mortgage Loan

Application and origination fees cover the costs of processing your loan request, checking your credit report, and evaluating and preparing your mortgage loan. Appraisal fee pays for the appraisal to ensure that the property you’re purchasing is worth more than your loan amount. Inspection fees cover the inspection reports both on termite and the property’s structural condition to make certain that the property to be secured as your lender’s collateral is in good state. Your lender also needs a property survey to confirm the property location and its legality as to where it is and that service is paid for by the property survey costs.

Points and Prepaid Interest Charged at Settlement as Part of the Closing Costs

You can use points to buy down interest rate on your mortgage loan, especially to lower monthly payments when needed to qualify for a loan. One point (1% of the loan amount), when paid up front at settlement, equals about 0.125% interest rate reduction for the life of your loan. If you stay with the loan long enough without selling or refinancing the property too early, buying points can save you money at the end. Prepaid interest is the actual interest on your loan for the remaining days in the month after the day of your settlement; it’s the first interest-only payment that your lender requires to be paid as soon as you settle.

Various Insurance Payments, Loan Guarantee Fees, and Escrow Funds

These include homeowner’s insurance, title insurance, private mortgage insurance if applicable, and certain loan guarantee fees if your lender has obtained for you a mortgage loan that is guaranteed by a federal agency. Money set aside to be held in an escrow account is to pay your up-coming due property tax and homeowner’s insurance; it’s the money you will have to spend any way, only that you need to provide the funds at the settlement.

Total closing costs normally account for 3% of the purchase price, but they can vary significantly based on your locale and also from lender to lender. So, it’s worthwhile to shop around for the best settlement service. You can also negotiate with the seller for sharing some of your closing costs. In a slow-moving market, some sellers may agree to pay certain closing costs customarily assumed by the buyer.

Related posts:

1. When Getting A Mortgage Rate Quote What Closing Costs Should I Factor In?
2. Are There Closing Costs For A Second Mortgage?
3. How Do I Calculate Closing Costs On A Fixed Rate Mortgage?
4. What Closing Costs Are Relative When Getting A Mortgage Rate Quote?
5. How Do Closing Costs Impact My Mortgage Rate?