The average closing costs on a home purchase in the United States is $3,024, according to a 2010 study by Bankrate.com. These settlement costs can add a substantial amount to the cost of purchasing a home. You need to be prepared for these expenses and ensure you have budgeted correctly for any additional fees you will need to pay. It may also pay to shop around for a mortgage that comes with fewer costs.
Most lenders charge an application fee to cover the cost of processing your loan and the fees for checking your credit report. The Federal Reserve Board estimates that average application fees range from $65 to $640. Lenders also generally charge a loan origination fee for preparing your loan. This is used to pay the lender's costs, such as attorney fees, notary fees and document preparation. These costs vary with the amount of down payment, from a median of $2,734 with a 5 percent down payment, to $2,537 with a 10 percent down payment. Most mortgage lenders will also add on a fee called "points." One point is the same amount as 1 percent of the loan. Points may sometimes be added on to the loan, but if paid upfront, they are deductible on your income taxes. Points costs can go up to 3 percent of the loan total.
Appraisal and Inspection
Lenders will generally request an appraisal of the property, to ensure it is worth the amount of the loan. Fees for appraisal range from $263 to $444, according to the Federal Reserve Board. Appraisal fees are sometimes included in the loan application fee. If the lender requests an inspection, such as a termite inspection, water test or structural inspection, this will add on an addition $300 to $500. In some regions, lenders may also require a flood hazard analysis, which costs around $10 to $16.
You mortgage lender will require you to buy homeowners insurance to protect the lender's investment in case your home is damaged or destroyed. The cost of homeowners insurance varies based on the value of the home and the type of coverage you need. A general guideline is $3.50 for every $1,000 of the purchase price. Your lender may also require you to carry mortgage insurance. This will reimburse the lender in the event that you default on your loan; this cost is usually paid along with the monthly payment. Federal law requires mortgage insurance to stop once you have a 22 percent equity in the property. The Federal Reserve Board estimates cost for mortgage insurance at $50 to $100 each month.
Interest and Fees
When buying property, interest begins accruing as soon as you settle the loan, while mortgage payments usually begin six to eight weeks after settlement. When you settle, you will need to pay interest for the remaining time in the month in which you settle. For example, if you settle on the June 10, you will need to pay interest on the period from June 10 to June 30, while your first mortgage payment will not be due until July 30 or August 1. The cost for this depends entirely on the loan amount and the interest charged. If your mortgage is through the Federal Housing Administration, Veterans Administration, or Rural Housing Service, you will have to pay a fee of 1.25 percent to 3.3 percent of the loan, depending on the type and size of the loan.
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