Mortgage closing costs are one of the more complex aspects of the loan process. These closing costs can amount to between 4% and 6% of the home’s sale price, but what do they cover? You’ll want to understand every detail about mortgage closing costs, and a well-qualified independent mortgage broker will help you to do just that.
The 10 Most Common Mortgage Closing Costs You’ll Pay
Closing costs can be wide-ranging, and some lenders are more complex than others. Here are the most common mortgage closing costs you’ll likely pay and what they mean.
#1: Mortgage Application Fee
The mortgage application fee is one of the first closing costs you’ll pay as part of the home-buying process. Based on the lender’s requirements, costs range from $200 to about $500. You will pay this fee upfront when applying for the loan, even though it is a deposit applied later at closing. This fee is usually non-refundable, which means you cannot get these funds back if the loan does not move forward.
#2: Attorney Fees
The buying and selling process is a legal matter, which means it involves attorneys. In some states, you cannot close without having an attorney. Most of the time, the attorney will create and manage the contract process.
Whenever possible, you should turn to an attorney you trust to review the contract details. Even if you do not do this, you are likely to pay real estate attorney fees; these costs vary widely depending on what this professional does for you.
#3: Appraisal Fee
Mortgage lenders turn to a third party for an appraisal to determine the home’s current worth. They want to be sure it is worth at least enough to get their money back should you stop making payments. The appraisal fee often ranges between $300 and $600, but it can be higher.
#4: Credit Reporting Fee
You may also notice a credit reporting fee in the mortgage closing costs. This fee is usually around $25. It is the mortgage broker’s cost to pull a copy of your credit report. This fee is passed on to you.
#5: Title Search and Title Insurance Fee
The title search and title insurance fee covers the cost of a historical records check of the property’s title. It is a critical step in ensuring the person selling the home has the legal right to do so. This is typically a one-time process, but you also will need to purchase title insurance to protect your rights to the home even after the sale. Overall, these costs range from $300 to $2,500.
#6: Discount Points
Mortgage closing costs may have discount points — a way to help reduce the interest rate you pay on the loan. Typically, one discount point equals 1% of the loan amount. You can pay this now to reduce the interest on the loan, potentially saving money over time. However, you don’t have to purchase discount points.
#7: Loan Origination Fee
Sometimes called a broker fee, the loan origination fee is a fee to cover the lender’s services. This fee is often under 1% of the loan amount and differs between lenders.
#8: Home Inspection Fee
It’s always wise to have a home inspection, as it gives you insight into the home’s condition and potential problems. In most cases, you will pay this out-of-pocket fee ahead of time and have the inspection done before the closing begins. However, some types of loans — such as FHA and VA loans — require a home inspection, making it part of the home-buying process. These costs will range from $300 to $500.
#9: Prepaid Taxes and Insurance
You may have to pay for the property’s real estate taxes and insurance upfront when closing. Most often, these fees are paid before closing to protect the home. The costs will range widely from area to area, but you can expect them to be around $1,000 to $4,500.
#10: Additional Fees From Third Parties
You will likely pay several additional, often small, fees as a component of the closing process. If any of the following are listed in your mortgage closing costs, and you’re unsure how they apply to you, ask your mortgage broker for clarification.
- Pet inspection fees
- Flood hazard determination fee
- Settlement or escrow agent fee
- Loan documentation fee
- Homeowners association certification fee
- Condo certification fee
- Wire transfer fees
- Deed recording fees
- Notary fees
- Courier fees
Get the Mortgage Information You Need
If you’re unfamiliar with mortgage closing costs, find out the specifics before signing your loan documents. The good news is that your closing agent can provide you with information about the fees associated with your loan. Find a local mortgage broker in your community to get started.
