After carefully saving up for the down payment on your home, you might think that you are in the clear – you have paid everything that you need to pay in cash for your new home. Unfortunately, the costs do not end there; you have closing costs to pay for at the closing of your loan. Some loans allow you to wrap those fees into your total mortgage amount, but most programs require the fees to be paid in cash at the closing. Just how much money do you need for these fees? The answer differs for every loan, but there are some fees that are the same across the board.
Some lenders charge an origination fee, which is basically a commission fee to the lender. Not every loan will have this charge; it depends on the lender’s policies. Some consumers voluntarily choose to pay an origination fee in order to obtain a lower interest rate. In other instances, the fee is charged if your loan is rather difficult to get through underwriting. Lenders can get away with charging these fees with these types of loans because they know that you cannot go to just any lender and get the same loan. If your loan application was rather attractive and you would be approved by almost anyone, the origination fee likely would not be charged because there would be more competition for your loan.
Most mortgages require a 3rd party to perform a full appraisal on your property. This service comes with a fee, typically between $300 and $500, depending on the complexity of the report that needs to be done. The appraisal is a benefit not only to the bank, but also to you as it allows you to understand the true value of the home that you intend to purchase as well as its overall condition. The appraisal should show you if there are any major flaws with the home, allowing you to decide to back out of the process if there is a problem that you did not know about. The appraisal fee is collected whether or not you close on the home, so be prepared to pay that money no matter what.
Similar to the origination fee is the processing fee, which is money paid to the lender to do the work on your loan. This typically involves pulling your credit report, printing your documents, processing your application and any courier fees. The fees are usually all lumped into this one category and are sometimes termed “junk fees” as you cannot really tell what these fees do for your loan. Most lenders charge some type of processing fee ranging between $300 and $900. If you are unsure about what the fees include, feel free to ask your lender to break it down for you.
Every loan needs title insurance, which typically amounts to around .5 percent of the price that you pay for the home. In addition to this fee are the fees that the title company charges to pull your title and inspect it. Some companies also charge a survey fee. These fees usually amount to a few hundred dollars and are paramount to the success of your loan. The title company inspects the title of your soon-to-be new home to ensure that there are not any outstanding liens that would pose a problem for you and if there are, they make sure that they are taken care of before you close. The owner’s title insurance is well worth the cost that you must pay in the long run.
These fees are the most common and must be paid at the closing. In general, you can figure on paying up to 5 percent of the purchase price of the home in closing costs. For a $200,000 home, this could amount to up to $10,000. This number is important to keep in mind when you are determining how much of a down payment you have for your new home. There are ways around the closing costs, including wrapping them into your mortgage or asking for a no closing cost mortgage, but in the end, you pay a higher interest rate and essentially end up paying more for the loan in the long run. Talk to your lender about your options including decreasing your down payment and taking on an FHA loan or paying private mortgage insurance on a conventional loan in order to be able to qualify for the home that you want if you are having trouble coming up with the money for the closing costs.Click to See the Latest Mortgage Rates»