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You may get a surprise when your lender presents the mortgage closing costs to you while you purchase a home. These costs can confuse anyone if they do not understand what they are. One type of closing cost is the application fee. This helps cover the time and expense of checking credit for all parts involved in the loan. Some lenders require payment of this before they process your loan request. Others put it into the final closing costs structure. Check with your lender and find out what their policy is towards application fees. Some will waive them if you sign a mortgage with them.
Another type of mortgage closing costs is the loan origination fee. You might see this listed as an administrative, processing, or underwriting fee. This fee covers the expenses of drawing up the legal documents necessary for taking out a loan. Some jurisdictions require lawyers to originate such documents so their fees go into this sum. It can also cover notary fees and fees for registering the documents with proper legal entities. The amount of these fees will vary widely due to regional and local fees as well as the amount of the loan, etc.
Some lenders may charge a borrower points on their mortgage. A point is equivalent to 1% of the loan amount. Lenders offer borrowers the option of paying points in order to bring their interest rate down. Borrowers often choose to pay this extra amount in order to bring their interest charges down over the life of their mortgage. In mortgage closing costs, you have to come to the table with that amount. If you cannot, some lenders allow you to add the amount of those points to your loan amount. Negotiate with your lender for how you can meet those fees.
What are some of the other mortgage closing costs you might see? An appraisal fee covers the cost of having a professional appraiser make sure your new home is worth what you want to pay for it. A lender home inspection fee covers the cost of having an inspector make sure the property is good shape. Prepaid interest covers the amount of interest on the loan until your first payment is due. Private mortgage interest is something lenders require when you do not have 20% down payment. There can be other closing costs involved with settling a mortgage. Speak with your lender about any questions you might have.
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