Mortgage Closing Costs
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Loan Origination Fee
Some lenders, especially mortgage brokers, charge a loan origination fee. This is the mortgage company's fee for securing financing for you. This fee varies from lender to lender and is (or should be) negotiable based on the amount of work the lender has done for you.
Be Prepared to Negotiate Your Loan Origination Fee
If you have had a rocky employment history that requires a lot of documentation or have numerous late payments on your credit report, you should expect to compensate the lender for the additional work that is required to secure your loan approval. However, if you are very creditworthy and provide all the necessary documentation at the time of the loan application, it is not unreasonable to ask the lender to accept a lower origination fee.
Mortgage brokers and mortgage bankers generally also receive fees from the bank or mortgage company that buys your loan from them. Therefore a loan origination fee could mean double earnings for the lender. Loan origination fees are generally a % of the mortgage amount; usually between .5% and 2% - depending on the applicant and mortgage amount. As a general rule, the loan origination fee as a percent of the mortgage amount should decrease as the loan amount increases.
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 included in the closing costs, or payment may be required 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 begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.
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.
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