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Understand Mortgage Closing Costs

Wednesday, April 30, 2014 - Article by: Lender411 Member

Whenever you are thinking about getting a mortgage, you must consider application and closing costs in your decision. These costs vary and are influenced by the type of mortgage you are acquiring, your credit score, the amount of the loan, and the geographic location of the home you want to finance. Generally, these costs will range from 3 - 7% of the total mortgage cost. Below, I list standard charges, and I briefly explain the meaning of each:

Application fees

you pay this fee at the time you submit your application

this may or may not be a refundable fee; it is the lenders decision. In other words, if your application is declined, you may not get a refund for this payment. The most intelligent thing you can do is to ask the loan officer you want to work with if this fee is refundable before you apply

the application fees may include:

credit report

credit reports are provided to the lender by third party credit monitoring agencies. The lender needs these reports to evaluate the borrowers credit history

other document related miscellaneous fees

appraisal fees

not always, but in some cases a lender will require the appraisal of the home you want to purchase as part of the application process. If not during the application phase, for sure during the underwriting phase and before the closing. This appraisal is required by law, and it helps establish the market value of the property you want to buy

Closing Fees:

these fall into two categories, lender related and government related

lender related closing fees:

mortgage processing fee

this fee covers the document preparation and processing of your loan

origination fee

this fee is more often charged when you work with a mortgage broker rather than with the lender directly. This fee may vary from 1 - 3% of the total mortgage amount

lock-in fee

this fee is charged when a borrower wants to ensure the estimate quoted rate applies at the time of closing

prepaid interest

this charge covers interest that accrues between the home purchase closing and the beginning of the next month


each point is equal to the 1 percent of the total loan. Points have an inverse relationship to the mortgages rate. If you pay upfront points, the loans interest rate goes down

title insurance

title insurance protects lenders from mistaken information about the title of the home you want to buy. At the time of underwriting, the lender will perform a search on the propertys title looking for any lien against it. The title insurance protects the lender in cases where the results of this search are mistaken, and previous liens supersede the lenders right over the property

underwriting fee

this fee covers the work that goes into the evaluation of all of the information the applicant provides. The underwriters make the decision on whether the loan is approved

tax service fee

this fee covers the lenders verification that a propertys tax payments are up to date

PMI application fee

if you are borrowing more than 80% of the appraised value of your home, you will be required to get private mortgage insurance, PMI. This is required by law. You can get an insurance provider on your own, or you can ask your loan officer to arrange one for you

government related closing fees may include:

state and local government transfer taxes

document recording fees

prepaid property taxes

As I said at the beginning, application and closing fees vary, and as you get ready to purchase a mortgage, you should ask the loan officer you want to work with for a list of the charges you may incur. Home buyers who don't have the cash to pay for these fees at closing time, may finance the fees as part of their mortgage. In this case, closing costs will be included in the total mortgage amount and be amortized over the first few years of the loan.

The Federal Trade Commission, FTC, offers you a mortgage shopping worksheet to help you evaluate mortgage products and lenders as you get ready to borrow. Using the sheet may help make a better choice:

Also from the FTC, you can visit this mortgage consumer guide to continue learning about the mortgage purchase process:

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