Evaluating mortgage quotes involves more than comparing mortgage rates. Understanding closing costs assists with finding your mortgage or refinance. Closing costs include mortgage lender charges and third party charges.
Mortgage lender charges
- Lender fees: Origination fees, document fees, and underwriting fees may be negotiable. The loan origination fee should cover drawing documents and any "reviews."
- Pro-rated mortgage interest: This is charged between the date your mortgage closes and your first payment due date.
- Credit report fees: Lender must pay to access credit scores and reports; they'll pass the cost along to you.
- Points: You may be asked to pay points if you want to lock in a lower mortgage rate. One point is equal to one percent of your mortgage amount.
Third party and vendor charges
- These are incurred by vendors other than mortgage lenders during the course of mortgage approval and are required for closing. Examples include, but are not be limited to:
- Property taxes and assessments: Mortgage lenders often oversee paying taxes on behalf of borrowers; they typically require two months of funds for taxes to be paid at closing.
- Insurance: Hazard insurance covers your home from casualties including fire and theft. You'll need to provide proof of hazard insurance prior to closing. If you're financing more than 80 percent of your home's appraised value, you'll be required to pay for mortgage insurance You may an an up-front mortgage insurance premium at closing, and/or a pro-rated annual premium as part of your monthly payments. Mortgage lenders typically require two months reserves for insurance to be paid at closing.
- Tax service: If your mortgage lender will be paying property taxes on your behalf, you'll pay a fee for a tax service company. This charge pays for a service to ensure that all property taxes and assessments are paid by your lender.
- Title insurance/abstract of title: These documents ensure that you're receiving clear title to your new home. Escrow /closing fees: Your closing will be conducted by an escrow or title company or an attorney. You'll pay professional fees for this service according to local custom and state law.
- Document recording fees: Mortgage documents are recorded in the county or other public records jurisdiction where your home is located. Recording fees differ from document fees as they are charged by the recording authority and are not negotiable.
- Appraisal: Mortgage lenders require a residential appraisal performed by a licensed appraiser for establishing the value of your property and the amount of your mortgage.
- Home inspections: A home inspection can uncover problems and potentially costly repairs.
- Repairs: If appraisers or home inspectors find defects, repairs will be required before your closing. Repairs are typically paid by sellers, unless you're buying a home in "as-is" condition.
When evaluating mortgage quotes, make note of concerns and clarify any costs you don't understand. Mortgage lenders and real estate pros can help with explaining closing costs.