Below is an overview of the types of closing costs you may incur on your loan. Some are one-time fees while others reoccur over the life of the loan. When you apply for your loan, you will receive a Good Faith Estimate of Settlement Charges and a booklet that will explain these costs in detail.
Loan Origination Fee: This fee covers the lender’s administrative costs in processing the loan. A one-time fee often expressed as a percentage of the loan. The origination fee is typically 1% of the loan, but remember, you can obtain a loan with no origination fee and a slightly higher interest rate. Loan Discount: Often called "points", a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount. This fee is rare since interest rates are so low.
Appraisal Fee: This is a one-time fee that pays for an appraisal- a statement of property value for the lender. The appraisal is made by an independent fee appraiser and can cost a standard $325 to $450 or much more depending on the home’s size and location.
Credit Report Fee: This one-time fee covers the cost of the credit report that is run by an independent credit reporting agency and is usually about $90.
Title Insurance Fees: There are two title policies: a lender’s title policy (which protects the lender against loss due to defects on title) and a buyer’s title policy (which protects you). These are both one-time charges, but the one you usually pay for as buyer is usually between $325.00, and $575.00.
Miscellaneous Title Charges: The title company may charge fees for a title search, title examination, document preparation, notary fees, recording fees, and a settlement or closing fee. These are all one-time charges and add up to about $200.
Document Preparation Fee: There may be a separate, one-time fee that covers preparation of the final legal papers, including the note and deed of trust. These legal documents run about $150.
Lender Fees: Other lender fees include a underwriting fee, a flood certification fee, an amortization schedule fee, and other miscellaneous fees that should be disclosed by your mortgage lender at loan application. These fees vary dramatically from about $450 to $900.
Prepaid Interest: Depending on the time of month your loan closes, this charge may vary from a full month’s interest to just a few day’s interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few day’s interest.
PMI Premium: Depending on the amount of your down payment, you may be required to pay an up front fee for mortgage insurance (which protects the lender against loss due to foreclosure). You may also be required to put a certain amount for PMI into a special reserve account (an impound account) held by the lender.
Beginning of the escrow account: Your lender will typically have an account where your property taxes and property insurance will be held. This account will be started with approximate taxes equal to two months in excess of the number of months that have elapsed this year. (If 6 months have passed, they will collect 8 months of taxes.) Your property insurance will be collected one year in advance plus two months worth into your escrow account.
