Mortgage Closing Costs

If you are in the market for a new home, then you should have a firm understanding of mortgage closing costs. The amount of closing costs can vary based on a variety of circumstances. Closing costs consist of a variety of different fees lumped into one sum. It is not uncommon for these costs to be thousands of dollars, although some may be less. As a general rule, however, closing costs are around five percent of the mortgage loan amount. These costs may include origination fees, property appraisals, credit checks, insurance, title inquiries, attorney fees, surveyor fees and more.

One thing you should know is that if your downpayment is low you may be charged higher closing costs. Also, where you live makes a difference. For example, if the home you are buying is prone to flooding, you will be charged for flood insurance. You may also be charged for up to one year of homeowners’ insurance as part of your mortgage closing costs. In some cases, especially those where the home is for sale by owner, the owner will assist with the closing cost to encourage a quick sale.

According to United States federal regulations, lending institutions are required to provide a Good Faith Estimate to all applicants which specify all charges and fees. A portion of the closing costs go to the mortgage lender, while other portions of the funds go to third parties as payment for their services. Once you are given your Good Faith Estimate, it is wise to shop around with other lenders to try and secure the best deal possible. In addition, you should request receipts from the various third parties such as appraisers, attorneys, surveyors and the like before you sign any binding contract. By asking for receipts, you will know how much the lender is taking and how much is going for other services.

If a mortgage lender refuses to provide you with this information, it should be a red flag that you need to find another one. The refusal may be an indication that you are being overcharged for the financial benefit of the lender. If you find that you are approved for a mortgage loan but cannot afford the closing costs, you may be able to get a loan for more than the amount of the property you wish to buy so you can use those funds to cover the closing costs.

During the loan application process, it is advised by the Federal Reserve that you ask for an estimate of the closing costs so you will be prepared and know whether or not you are using the right lender. If your credit is good and your downpayment is high enough, you may even be able to get a loan with no closing costs. Usually though, this is because the lender will loan you enough money to cover those costs, as previously mentioned. If you want to do some research before you even apply for a mortgage loan, there are handy online calculators that you can use to figure out a rough estimate of how much you can expect to pay.

Mortgage closing costs are merely one aspect of buying a home. There may be upfront fees to run your credit history as well, in addition to loan application fees. The best course of action is to learn as much as you can about the mortgage lending process before you even begin to search for a mortgage lender. The more you know about the process, the more likely you are to get the best deal and avoid being overcharged for unnecessary fees by unscrupulous lenders.