What Should I Expect in Closing Costs?
When faced with a loan for tens or hundreds of thousands of dollars, the last thing you want to do is fork out even more money for closing costs. Unfortunately, closing costs are a necessary evil, but if you are familiar with how they work, you can give yourself an advantage and prepare against paying too much.
Closing costs average about 3% of the loan but can vary from state to state and lender to lender. The following gives a brief description of some typical closing costs you may encounter:
Discount points: Additional money you can pay to the lender at closing time to reduce your interest rate. One point is equal to 1% of the loan amount.
Origination fee: Paid to the lender to cover costs of generating the loan. It is typically 1% of the loan amount.
Application fee: Covers the lender's cost to process the information on your loan. It is usually paid at time of application and is not refundable.
Appraisal fee: Covers an independent party's appraisal of the home you want to purchase. Lenders require this to ensure the house's value for the loan amount.
Escrow: Refers to money held by a neutral third party that will be used at a later date to pay an obligation. This could include a deposit, property tax, homeowner's insurance, or private insurance to cover a given period.
Credit Report fee: Goes toward running your credit report to make sure you qualify for the loan.
Title insurance: Examines property records to ensure the buyer is purchasing a house from the legal owner and there are no hidden liens, overdue special assessments, or other claims affecting the value of title.
Attorney fee: Pays for preparing and reviewing all documents needed to close on your loan.