Purchasing a home is one of the largest investments you will make in your life. Therefore, before purchasing a home, you need to fully understand the many complexities associated with financing the purchase of a home. Mortgage loans typically have many costs associated with closing. These costs, known as closing costs, involve every expense associated with the mortgage loan and the transfer of the property's title.
Figuring the Closing Cost
Every mortgage loan will vary in the exact amount of closing costs charged. However, you can calculate your specific closing costs by adding the individual components of the closing costs associated with your mortgage loan and transfer of title. Your closing costs include points, property inspections, title fees, insurance, property inspections and processing fees. When you add all of the individual closing costs fees, you can calculate the closing costs associated with the house you want to purchase.
Lender and Third-Party Fees
Lender fees are fees charged by the lender and include loan origination, document fees, points, and escrow fees. Third-party fees are fees assessed by companies other than the lender. These fees include inspection fees such as termite control and appraisals, homeowners association fees and title fees. All of these fees can be negotiated -- it all depends on how badly the seller wants the property out of her hands.
Government, Escrow and Interest Fees
Government fees usually include any taxes and deed fees associated with a mortgage loan. Escrow accounts are a type of impound account set up by your lender to collect payment for home insurance premiums and real estate taxes. Lenders offer mortgage loans with and without escrow accounts. Additionally, you will usually have to pay temporary interest for the mortgage at the time of closing. Temporary interest is the actual interest charge from the date of your mortgage closing until the due date for your first mortgage payment.
Ask For All Fees
Before you even apply for the loan, you can ask a lender for a list of all the fees and closing costs associated with your mortgage loan. The "good faith estimate" is the name of the document that a lender will provide you, itemizing all closing costs associated with your home purchase. Should the terms of the mortgage loan change prior to closing, you should ask your mortgage lender to provide you with an updated good faith estimate.
- "Principles of Real Estate Finance"; Charles Long; 2010