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Lets take a quick look at charges and fees associated with closing on a home mortgage. A down payment is not the only cash involved in getting a home loan. You need to also consider Closing Costs.

What Are Closing Costs?
Closing costs are charges, fees and pre-paid items for processing your loan and mortgage. Closing costs can even include an optional expense you pay to reduce your interest rate.

Closing costs are collected by the lender but are paid to various organizations from the lender to the government to the mortgage broker, if you use a mortgage broker instead of a direct lender. These expenses vary from state to state but often add up to between 3 and 7 percent of the amount of money borrowed.

Fees Paid When You Apply For A Loan - Click For More Information
(Paid When You Submit Your Application)

Fees For Closing And Services - Click For More Information
(Paid On The Day Your Purchase Is Final)

Pre-Paid Amounts Required By Lenders - Click For More Information
(Paid On The Day Your Purchase Is Final)

Fees Paid When You Apply For A Loan
These fees also commonly referred to as "3rd Party Fees" are usually collected by the lender or broker upfront for services provided by an outside party.

  • Appraisal Fee - The amount charged by an appraiser who determines the value of a home.
  • Credit Report Fee - The fee for receiving your credit report from a credit reporting agency.

Note: By law, lenders must give you a document called a "Good Faith Estimate" within 3 days after you apply for a loan. This paper tells you how much you should expect to pay for closing costs. It is a lender's best estimate of how much all the fees cost. The actual amount you pay may be different. Amounts and types of fees and charges vary based on your geographic location, the loan, and other considerations.

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Fees for Closing and Services
These fees are usually paid on the day of the close on the purchase. Sometimes these fees can be include in the loan so that there aren't as many upfront costs. Also you can negotiate with the seller of the home to share some of these fees. If they agree and will pay for some of these fees make sure you put it in your contract.

  • Real Estate Agent Commission - The amount you've negotiated to pay a real estate agent or broker when you buy a house, usually a percentage of a home's price.
  • Origination Fee - The fee charged by the lender for processing your loan.
  • Loan Discount or "Points" - You can sometimes receive a lower interest rate, by "paying points". A point is equal to 1% of the amount of money you are borrowing.
  • Settlement or Closing Fee - The fee paid to the closing agent to act as a disinterested third party who handles the finalizing of your loan and the purchase of a home.
  • Title Insurance Costs - To issue title insurance, government and other records must be searched to make sure no one else has a legal claim to the home. A title insurance binder and an insurance policy are also required. You are charged separate fees or an all-in-one amount for these costs. The title insurance policy you are required to purchase protects the lender. It is a very good idea to pay a little bit extra and take out a separate title insurance policy that protects you.
  • Attorney's Fees - If you live in an area where an attorney works on title or other parts of a home purchase, there is a fee for legal services.
  • Property Taxes - Any local property tax must be paid annually. If you purchase a home in the middle of the year, you may be asked to share some of the year's taxes with the home seller. The closing agent prorates the amount you owe.
  • City, County and State Charges - The local governments where you live may charge taxes and fees to record and stamp documents such as deeds and loan paperwork.
  • Survey - The cost of surveying the property to determine the size of the lot your home is on. Or, for example, whether a public utility company has a right to have access to the property.
  • Pest Inspection - If an appraiser notices signs your home may have termites or other pests, or if the laws in your area require it, a pest inspection and report must be done. Fees for these services are included in closing costs.
  • Flood Check Fee - Lenders must check Federal Flood Maps to find out if your home requires flood insurance. This fee covers the map search and issuing a certificate.

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Pre-Paid Amounts Required by Lenders
These fees are collected to cover some necessary charges like the interest on your loan until your first payment is due. These are called "pre-paids" and are collected on the day your purchase is final.

  • Interest - If your loan is finalized before the last day of the month, at closing you must pre-pay interest on the loan for the time between the day the loan funds and the first day of the next month.
  • Homeowners' Insurance Premium - One year of this insurance coverage that protects the lender and you if the property is damaged is paid at the loan closing.
  • Private Mortgage Insurance - Typically, if you make a down payment of less than 20%, lenders require Private Mortgage Insurance (PMI) to protect themselves in the unfortunate event that a borrower does not repay the loan.
  • Reserve or Escrow or Impound Account - This account is set up and held in trust for you by the lender. It is used to pay for property taxes, homeowners' insurance, flood insurance and PMI. Usually, at loan closing enough money to pay for at least 2 month's worth of these items is deposited in the account. Your lender pays these bills for you when they are due. Your monthly mortgage payment includes money that is deposited into this account. Not all loans require a reserve account.

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