Mortgage Closing Costs

When you close on a mortgage, there are two significant upfront costs: your down payment and your closing costs. Unlike a down payment, which gets applied towards your balance, your closing costs (or settlement costs) are one time charges that are collected by the lender, broker, the government and other parties that help make the loan happen and are not applied towards your home equity. Mortgage closing costs vary from region to region, and some may be lower or higher according to your credit score. As a rule of thumb, included with a 10 percent down payment, you can expect to pay about $8,000 to $13,000 in closing costs on loans in the $50,000 range, about $17,000 to $19,000 for loans in the $100,000 range and about $30,000 to $43,000 for loans in the $200,000 range. So, as you can see, the bigger the mortgage, the larger the mortgage closing costs. Here’s how the closing costs typically break down:

Application Fee

This is imposed by your mortgage lender or mortgage broker and covers the costs of processing your loan application and pulling your credit report. These are usually about $300 to $400, and may be higher if they have to pull multiple credit reports (i.e. one for you and one for your spouse). Sometimes, the appraisal fee is also included in your application fee. Application fees may be as low as $100 or as high as $650.

Loan Origination Fee

Also called the underwriting fee or the administrative fee, this “processing fee” is charged by the lender and covers the costs of arranging the loan. That includes everything from drawing up documents to paying attorneys and notaries. This is usually less if you have a higher down payment. Typically, you’ll pay around $2,500 to $3,000.

Points

Points are usually negotiated with the lender. Points are upfront payments that reduce your interest rate, but do not go towards your down payment. Points equal 1 percent of the loan amount. How much they reduce your interest rate is up to your lender.

Prepaid Interest

If you settle your loan in the middle of the month, you’ll have to prepay the interest when you close. For example, if you close on August 16, you’ll have to pay the interest on your mortgage for the remainder of the month. This closing cost, of course, depends on your loan amount and the interest rate.

Private Mortgage Insurance (PMI)

If your down payment is less than 20 percent of the value of the home, then you will usually have to take out private mortgage insurance. These are annual premiums that are paid monthly, but you’ll also have to pay a portion upfront. Upfront PMI payments vary according to the price of the home, and can range from about $500 for a $50,000 home to $1,500 for a $200,000 home.

State and County Requirements

There will also be a number of fees that you’ll have to pay to meet local government requirements. This includes recording fees, transfer taxes and any inspections required for the area (such as termite inspection or flood determination). These vary widely by area, but will usually be several hundred to a thousand dollars total.

Other Closing Costs

Beyond these, you may have other costs that aren’t charged by the lender but are connected with closing a mortgage, such as attorney’s fees, home mortgage insurance, reserve or escrow funds and others. Your best bet for anticipating mortgage closing costs is to simply ask your mortgage broker or mortgage lender for an estimate at various points in the loan process.