Home Mortgage BasicsMortgage Fees A Go-Go

When you are buying a home and using finance, as most people do, there is a whole host of fees at closing that you will have to pay out of pocket. Which is to say, the amount of cash at closing you have to contribute.

Financing Brings Flexibility To Closing

Although there will be costs at a real estate closing, even if you pay all cash, a significant portion of these are generated by the lender. It helps to look at what those costs are and how flexible the lender is in how you pay them.

Even though you will have to make trade-offs to achieve it you can significantly reduce the cash you need to pay at closing when finance is involved. Consider it safe to say that the lender is going to get the fee from you somehow. After all, they are lending money as a business; they have an expectation that the more money they lend, the more they should make to do it.

Borrower Break Down

The most significant part of the cost of borrowing comes in the form of origination fees and points. The loan origination fee goes to paying the commissions and salaries of the people working to sell you the loan.

Points are prepayments of interest on your loan; they range from zero to four points. Not having any points (zero points) will save closing costs for you at the expense of paying a higher interest rate over the term of the loan.

Paying more points at closing will save you from paying higher interest over the long term. Because of the way that interest is calculated the savings will be much higher than the cost of the points.

List Of The Costs Related To The Loan

  • Appraisal fees
  • Home inspection fees
  • Lenders title insurance fees
  • Credit report fees
  • Loan origination fees
  • Prepaid interest points

Other Closing Items That Pile On The Expense

At the time of signing the contract the buyer pays an earnest money deposit, which is usually around one percent of the sale price of the property. Title insurance also comes in owner’s policies.

  • Earnest money deposit
  • Owner’s title insurance
  • Title transfer fees
  • Et cetera

When you finally choose a home to purchase and apply for finance for the property, the lender is obligated to give you a detailed written estimate of your costs within three days. So before you sign the contract you will have an accurate breakdown of the costs that you will have to clear at closing.

Lenders Can Save You At Closing At A Price

A buyer’s costs at closing will likely fall in a range of between two and five percent. However, costs are not fixed at a statutory rate. Part of making the real estate sale happen is finding the funding to make the closing process go to completion.

Lenders can provide a lender credit; an upfront payment at closing that offsets the cost of the many items of closing and can even give you a no-cost closing. This will, of course, cost you in the long term, with a higher interest rate that will be far more expensive over time.