A home loan often involves many fees, such as loan origination or underwriting fees, broker fees and transaction, settlement and closing costs. While calculating how much house you can afford, it's important to consider closing costs and the effect they have on the size of the loan you get and the interest rate you pay.

Sponsored Search Results

LendingTree Official Site Refinance $200,000 For Only $1,120/Mo. 1 Simple form, up to 4 Offers. Ditech® Official Site Rates starting at 6.00%, 6.239% APR. Apply Online Now. Rate's Starting at 5.00% Fed Rates at all time lows. Get a Low Fixed Rate Today! 5.69% APR. Chase® Home Equity at 4.49% Get Lower Rates & Lower Payments. Limited Time Offer - Apply Online -.

Closing costs are the actual expenses that the lender incurs in the origination of a new home loan.  Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants.  Other fees are related to the house itself, such as the appraisal of the property.  Others are payment to the lender for processing your application, such as the loan origination fee.  All these costs are lumped into a broad category called "closing costs."  Unless the seller offers to pay them for you, this area of expenses is charged to the buyer, and often runs between 2 and 3 percent of the amount being borrowed.  Some of the specifics of these “closing fees” include:

Origination fees:
Origination fees cover the lender's cost of processing the loan. The amount of the origination fees vary from lender to lender.

Appraisal fee:
In order to fund the loan, the lender must verify the value of the home by comparing it to other houses that recently sold in the area.

Title search:
The lender will require a title search to make sure the property belongs to the seller and he can rightfully sell it to you. Generally the buyer purchases title insurance for the lender to provide protection in the event of a legal challenge to the ownership of the property.

Discount Points:
Loan discount points are, in essence, a form of prepaid interest.  They are typically the largest cost associated with getting a home mortgage. One discount point is exactly equal to one percent of the amount being borrowed.  It is paid in cash at closing to the lender as a form of interest.  Unlike other costs, points can not be financed into your payment and must be paid with cash at the close of escrow. The most common type of points are discount points. These are fees paid by the borrower to reduce the interest rate of the loan. The more points you agree to pay upfront, the lower your interest rate will be.

Prepaid Items:
Most home lenders want you to set up what is called an "escrow" account.  This is essentially a savings account that the lender holds.  Every month you will, in addition to your regular loan payment, deposit a sum for property taxes and for home owners insurance into this account.  When the bills for taxes or insurance come due, your lender will make the payment for you. At closing, you will be required to set up an escrow account with about 9 months worth of taxes and about 2 months worth of insurance payments.  In addition, you will have to pay for the first year's insurance policy in full. 

Other Fees:
In addition to the fees above, you may also have to pay a number of other fees for signature notarization, government recording fees, transfer charges, property taxes and insurance fees. A reputable lender can give you a very close estimate as to what your closing costs will be before you start the loan process.