Mortgage Closing Costs - What to Expect

Don’t just assume that the price of a home that you agree on with a seller is the end of the road as far as costs! Like so many other purchases, buying a home will mean that there are additional costs associated outside of the actual retail price. These are usually due at the end of the buying process, before a deal is struck with the lending company, and are known as “closing costs”. Here are a few of the most typical.

Points

Points are equal to one percent of the total amount of a loan. If you buy a home worth $300,000, then one point would be $3,000. The decision to buy points is made right before the mortgage is closed, as the number of points you opt for will directly affect the amount of money you pay each month for the mortgage.

There are two types of points, discount and origination fees. Origination fees are charged by the lender in order to cover the cost of the loan. Discount points are prepaid interest amounts and will reduce the dollar amount you pay each month on the interest on your loan, and therefore your total payment amount.

Home Insurance

If a house is destroyed by fire or act of God, the mortgage company stands to lose the most; after all, the money is still owed to them and with no way to recover the loan through the sale of the home they will take the hit. For that reason, lenders will insist that you purchase home insurance before they approve the mortgage. This insurance must be renewed each year according to almost all contracts.

Title Insurance

Every once in a while a home owner and their mortgage lender will get a nasty surprise in the form of another person with a lien on the property. In effect this person claims that the property is theirs, and that the person who sold it to the buyer had no right to do so. Title insurance, like home insurance, will mean that both the lender and the buyer are protected against undisclosed liens.

Surveys and Inspections

Lenders will also typically request an inspection of the home and/or a survey of the property in order to ensure that everything is still within the original boundaries. Appraisal fees, to determine if the property has been valued appropriately (directly related to recovery in the event of a resale) are also an added cost.

So as you can see, when looking to purchase a new home, you must also consider the additional costs associated with the purchase.

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