What The Heck Are Closing Costs And How Much Should They Be?

There are fees you have to pay when getting a mortgage. These fees will come from a variety of sources including your loan consultant, the lender, appraiser, title/escrow companies, taxes, and insurance.

The good thing is that you must receive a Good Faith Estimate with in 72 hours of your mortgage application. You good faith estimate is a break down of all the fees associated with your loan.

Here are some of the most common closing costs:

Origination Fee or Broker Fee

This is the amount that the loan consultant is charging to do your loan. This can be a flat fee or a percentage of the loan. Normally the fee is calculated as a percentage of the loan. You could be charged anywhere from 0% to 6% to do your loan. However the average fee is in the 1% to 2% range.

Appraisal Fee

This closing cost can vary widely as well depending on the type of loan you are doing. The area you live in will affect the cost of the appraisal too. Plan on $350 to $600 for an appraisal.

Credit Report Fee

The fees for credit reports will vary as well. You could be charged nothing to as much as $65 for your credit report. An average fee would be between $18 to $35.

Underwriting Fee

This fee is charged by the lender. They have a few miscellaneous other closing costs but they are normally lumped together under the one closing cost on the Good Faith Estimate. The underwriting fee could range from as little as $495 up to $950.

Processing Fee

This fee is typically charged by the company that is helping you with your loan. It is charged to help recoup the costs of putting your loan package together by the processors.

Application Fee

This is a fee that mortgage consultants will charge for them to meet with you. It normally is refundable if they are unsuccessful at getting you approved for a loan. Not everyone charges an application fee. I don’t.

Pre-Paid Interest

This closing cost is paying your interest from the day you closed through the rest of the month. So for example if you closed on the 15^th you would need to prepay the remaining 15 days.

Taxes

This fee is the widest ranging of them all because each property is taxed at different levels. It also depends on weather you choose to pay taxes on your own or if you want them included in your monthly payment. It also will depend on the time of year your loan is closing.

Insurance

This will range greatly as well. Depending on weather you will pay them on your own of have them included in your monthly payment. It will also depend on the value of your home as well as what kind of coverage you want. You may also need to pay for flood insurance as well as private mortgage insurance.

Title Insurance

This closing cost is based on a sliding scale. The larger the loan amount the higher this fee will be. If you are purchasing a home, the title insurance will be split between you and the seller. If you are refinancing you will pay the entire fee.

Escrow Fees

The escrow company is a neutral third party that makes sure the monies are distributed to the right people. This is also where you will sign all of you loan documents. There are a variety of fees associated with the escrow and will vary depending on the company as well as where you live.

Recording Fees

These are the fees the county will charge to record the trust deed. Again these will vary depending on what the county charges as well as how many documents are being recorded.

As you can see it is difficult to say what your closing costs will be. When you are being pre-qualified the loan consultant can usually give you a rough idea with out doing a full blown Good Faith Estimate.

Would you like to know how you can avoid paying most or all of your Closing Costs?