Loan-Related Closing Costs

Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.

Credit Report
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.

Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15, your first monthly payment will be July 1.  Your mortgage payments pay the interest on the mortgage for the month in arears . . . iJuly 1 payment will pay interest for the month of June.  At closing, 16 days of interest will be collected covering the interest accrual period between May 15 and May 31.

Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.  This is usually the amount charged by your homeowerners insurance co to pay for 1 year's insurance - PLUS 2-3 months.  Since your mortgage usually includes 1/12th of the annual taxes and the insurance, at closing 2-3 months of each will also be collected since you will not have a payment for 30-60 days.   This will assure that when the taxes and the new insurance policy needs to be paid, there will be adequte funds accumulated in your escrow account for the lender to pay them for you.   You may also choose to pay your own annual taxes and insuance, however most loan programs require 20% downpayment before this is an option.