Simplify Your Mortgage Closing Costs
Understanding mortgage closing costs for home loans are those that accompany home refinancing or purchases and can be confusing for many homeowners. Once the lender and borrower reach a loan agreement, they compile a list of costs which are required to be paid at the termination of the loan’s tenure. Although these costs vary among mortgage lenders, there are certain costs which remain fairly constant. It is important to remember that once the time has come to sign the final paperwork, all of the costs will have been disclosed and agreed upon. There should be no sudden or unexpected costs.
Loan & Refinance Closing Costs
A point is one percent of the principal, and is paid in order to decrease or buy down the interest rate on your loan. Depending on the type of mortgage loan, you could be paying anywhere from one to six percent of the principal at the time of closing. This is good news from a long term perspective as you will be paying a smaller amount each mortgage payment -- however, it increases your one time mortgage closing costs.
The loan origination fee is collected by the lender to cover the cost of processing the mortgage, i.e. the paperwork.
There is also PMI, or private mortgage insurance, for people who are able to meet the required down payment. This type of insurance is for the lender’s protection in the event that the borrower defaults on the loan. The borrower will pay PMI, which is typically about 0.5% of the principal, until at least twenty percent has been paid as home equity.
The homebuyer can purchase what is known as title insurance, which protects him/her should the seller not own the property. This amount is based on the value of the house for sale.
There is also a cost incurred in order to hire an appraiser who is responsible for arriving at fair property value. The amount of the appraisal fee determines whether or not the borrower can come up with sufficient collateral.
In most cases, there are also the costs that coincide with escrow and surveying the property.
Although not included in the closing costs, homeowner’s insurance is something the buyer will face upon moving into the home. This cost will be relatively lower than other forms of insurance. Another number not included in the closing costs is the amount of money that comes out of the buyer’s pocket for home inspection. If the inspector finds problems with the house, it is important for the buyer to bring them to the seller’s attention prior to the finalization of the paperwork.
Remember, there is no defined way to determine who pays what. It is usually negotiated by the lender, buyer, and seller what the costs for each will be. Regardless, the average closing costs mortgage fee will generally range between two and seven percent of the price of the property.
No Closing Cost Refinance Mortgage Loans
Refinancing with no closing costs may be possible if you use a flat fee service. This doesn't mean that the mortgage company isn't charging you fees. Typically, a loan company will reduce the fee to the borrower and simply raise the interest rate they charge. It is a trade off that must be calculated to see if there is a net savings to you. Find a closing cost calculator to find out if you should use a flat fee mortgage service.