Costs Associated With Getting a Mortgage

Our home is the single biggest asset that most of us will own during our lives; and as everybody knows, it is not cheap - the average cost of a home in the United States is now around $215,000. Once you sign all the papers and prepare to move into your new home, you will incur various costs associated with your mortgage; these are generally known as closing costs. They are paid in addition to any down payment and basically cover the cost of processing and underwriting the mortgage loan.

Closing costs generally fall into three different categories - origination, escrow and final costs. Taken together, they typically include fees for such things as a credit report request, title search and insurance, home appraisal, mortgage insurance as well as various other miscellaneous fees. The total amount depends on the value of the house you are buying - typically, the total is between 2% and 5% of the cost of the house. Closing costs alone total an estimated $110 billion per year in the United States.

If you are taking out a mortgage, it is a good idea to get some sort of estimate of the closing costs, which a lender is required to give to you - in fact, it should be included with the details of your loan. This estimate of costs is sometimes known as a good faith estimate. Closing costs cannot really be completely avoided, although there are some things you can do to lower or eliminate some of them. Some lenders will even cover some closing costs in order to keep your business.

One solution is to have the closing costs rolled into the amount of your loan. You are still paying them, but they are spread out over a period of time. This way you do not have to have a large sum of money up front, although your interest rate may be higher. It is also possible to have the seller pay the closing costs - however, this will almost certainly add on to the purchase price of your new home.

Your mortgage interest rate may also affect the closing costs - a mortgage with a lower interest rate can mean higher closing costs as a result of the various fees and points. (A point is a charge paid ahead of time - one point equals1% of the loan amount) If you are taking out a no-point loan with a higher interest rate, the lender may be willing to pay more of the closing costs. The more points you that buy, the lower your interest rate will be - but you will also need more money when you close.

So what exactly are all these annoying but necessary extra fees? Your lender or broker will probably charge an application fee, typically ranging from $75 to $300. If you are buying a house, you must obtain a homeowner’s insurance policy, which protects you in the event of any kind of natural disaster. Escrow (or reserve) funds for insurance or taxes are another requirement - these can vary based on the price of the home and are normally paid by the buyer although if you are taking out a VA (Veteran’s Administration) loan, the seller pays this amount.

Also required is a tax service fee; usually around $75 and it is paid to verify that the taxes have all been paid on the purchased property. You will probably have to pay for an appraisal of the home - typically costing from $300 to $700 - as well as a land survey, which may cost from $150 to $400. Finally, there are miscellaneous fees, which typically total from $200 to $500 and cover the cost of delivering and signing documents, as well as any notary fees, attorney’s fees etc.

The good news is that some things are paid by the seller and not the buyer - the seller is responsible for paying property taxes up until the last day of ownership; the seller is also usually responsible for paying any liens on the property. Title insurance covers any unrecorded liens and depending on what the laws in your area are, this can be paid by the buyer or seller - it is also possible to split the cost 50/50.

If you are refinancing a mortgage, some of the above costs may be applicable. And it pays to have good credit when it comes to applying for a mortgage - not only will the interest rate on your mortgage be lower, but some closing costs such as homeowner’s insurance, can be higher if you have a poor credit score. Always check your closing costs to make sure you were not overcharged - it is a good idea to ask your lender for a detailed breakdown of what you are paying for. This can ensure that you receive what you need when purchasing a mortgage.