The Costs of Getting a Home Loan
Most Costs Are Fixed, But You Choose To Buy Points
To process the application:
- Loan Origination: What the lender charges to prepare the loan.
- Appraisal: To determine the market value of the property. Typically paid soon after application, it generally appears on the settlement sheet as “POC” or “paid outside closing.” Expect to pay $300-$1,000, depending on the size and location of the property.
- Survey: To verify and ensure that there are no discrepancies in the property’s boundaries. Expect to pay $150-$400, depending on the size and location of the property.
- Credit Report: To determine whether you qualify for a loan and which rates and terms the lender will offer. This, too, is often POC. Expect to pay $25-$100.
To secure the lender’s interest:
- Title Insurance: To ensure the lender that the seller owns the property and can transfer title free-and-clear of any claims. About $200-$500 for the title search plus 0.2%-0.5% of the loan amount for the insurance. You could also by title insurance for yourself, ensuring you that the title you receive is free-and-clear of any claims.
- Mortgage Insurance: Protects the lender should you not make your payments and the lender forecloses and sells your house for less than you owe.
- Private mortgage insurance (PMI). Lenders often require PMI if your down payment is less than 20% of the value of the property.
- Mortgage insurance premium (MIP). The Federal Housing Administration (FHA) requires you to pay mortgage insurance premiums on loans it insures.
And if you chose to pay for a lower interest rate:
- Loan Discount Points: Voluntary payments to the lender, expressed as percentage “points” of the loan amount, used to “buy down” the interest rate. One point will often reduce the interest rate on a 30-year mortgage about 0.25%.
Other Potential Fees: For processing, document preparation, document stamp taxes, recording the new deed with the courts, couriers, loan assumption, home inspection, flood plain certification, underwriting, wire transfers, and attorney fees.
Costs You Generally Need To “Pre-pay”
Future Costs Lenders Usually Want Paid Up-front:
- Pre-paid insurance: Lenders typically insist that the first year’s property insurance be paid at closing.
- Pre-paid interest: Lenders typically collect the interest accrued between closing and your first mortgage payment at the closing.
- Pre-paid escrow: Lenders often insists on collecting funds, as part of your monthly mortgage payment, to pay your quarterly real estate taxes and annual insurance premiums when these payments are due. The funds the lender holds are put in “escrow.”
Cost Information You Will Get
An Initial Estimate & Final Pre-Closing List
- Good Faith Estimate that lenders must provide within three days of your application for a mortgage present “good faith” estimates of your closing cost.
- HUD-1 Settlement Statement that the title company provides before closing should list your actual closing costs.
For More on Closing Costs
Comprehensive, Trustworthy Information
U.S. Federal Reserve Board’s Consumer’s Guide to Mortgage Settlement Costs.
U.S. Department of Housing and Urban Development’s Shopping for Your Home Loan.