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Common Costs Associated With a Home Loan

By Gretchen Wegrich Updated on 12/22/2014

cost of a home loan, common costs of home loans, mortgage loanThere are many costs associated with a home purchase mortgage loan.  Some of these costs different depending on the exact nature of the loan you're seeking, but most of them remain fairly constant regardless of the loan type or product you choose.  Some of these costs apply only to purchase loans and not to refinance loans.

Read through the following list of costs associated with taking on a mortgage loan.  If you're a first time home buyer, make sure you ask your lender or mortgage broker which of these costs will apply to you so that you can adequately plan.

Prepaid taxes. 

When you purchase a piece of real property, you will owe property ownership taxes on it each year as long as you own it.  This is something all homebuyers expect.  But your lender will likely require you to pay several months worth of property taxes at the time that the loan closes.  Different lenders may require different amounts, but some lenders require that you place up to 9 months worth of property taxes into an escrow account before the loan can close.  This can make up a significant sum of money.  Find out from your lend exactly what this will cost before you decide to move forward with your loan.


Depending on your mortgage arrangement, you may have to pay discount points up front at the closing of the loan.  These points can best be thought of as miniature down payments, as a single point represents one percent of the total loan amount.  Points are paid in exchange for lower interest rates.  In order to obtain the lowest mortgage rates available, you'll likely have to pay a few points at closing.  Find out from your lender how many points are required.

Closing costs. 

Closing costs make up the majority of the expenses you'll pay to close your loan.  This category of costs covers such items as home inspections and appraisals, credit reporting fees, broker commission, document preparation expenses, and more.  The nature and amount of the closing costs you'll have to pay depends entirely on your lender, as different lenders charge different fees.

Your lender will provide you with a Good Faith Estimate (GFE) early in the mortgage application process that outlines all costs associated with closing the loan. Go through the list item by item with your loan officer or mortgage broker and make sure you understand what you are paying for.  Ask about any fees that don't make sense to you.  Most importantly, make sure you are getting the best mortgage terms possible to meet your long term financial needs.

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About The Author:
Gretchen Wegrich
Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.

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