Mortgage closing – also called mortgage settlement – is one of the last processes in the homebuying process. At closing you can expect to sign a lot of papers, get the keys from the previous homeowners, and pay several mortgage fees. You should come to mortgage closing with a check for your down payment and the money for your closing costs. Here are some of the fees you can expect to pay at closing. (Average fees based on U.S. averages from Bankrate.com.)
The mortgage application fee is the fee you pay to the lender for the mortgage application. It often includes the fee for checking your credit report. The average application fee is $284.
The loan origination fee is the cost of underwriting your loan. It might also be called a processing fee or underwriting fee. The loan origination fee may include other fees like the attorney’s fees, notary fees, document preparation fees. This fee may be paid to the mortgage broker if you used one. Loan origination fees are typically between 1% and 3% of the loan amount. Average is $1153.
The appraisal fee is what the lender pays to determine the value of your home. Lenders want to make sure the house is worth at least as much as the mortgage amount. The appraisal fee may be lumped in with the application fee and if so, you can still ask to see the fee broken down. The average appraisal fee is $327.
If you’ve buy points to lower your interest rate, the fee is due at closing. Points reduce your interest rate by .25% for each point. Each point costs 1% of your mortgage.
You’re typically required to prepay interest since there’s a gap between the time your first payment is due and the time interest starts accruing on your mortgage. The amount of interest you must prepay depends on the number of days between closing and your first payment, your interest rate, and your loan amount.
The lender charges a flood inspection fee after they check to determine if your home is located in a flood area. If your home is indeed in a flood area, you’ll be required to purchase flood insurance. Average flood inspection fee is $14.
Title insurance protects the lender if something goes wrong in the title search. The title insurance premium is a one-time payment averaging $756. The cost is based on your mortgage amount and varies by state. You can purchase separate title policy that will cover you if something is wrong with the title search.
The lender may quote a lump-sum price for closing costs. This lump-sum price would include many of the fees listed here: the application fee, origination fee, points, pest inspection fee (average $62), appraisal, flood inspection fee, title search fee (average $167), and title insurance. There may be other fees due at closing that aren’t included in the lump-sum price, e.g. prepaid interest or private mortgage insurance premium. Average closing costs in 2010 were $3,741 on a $200,000 mortgage.