Mortgages Can Be Taxing--What You Should Know about Closing Costs and Fees

Closing costs can often add up when you have taken out a mortgage.  By knowing what closing costs and fees will apply, you will be prepared for closing and owning your home.  Closing costs include things such as real estate transactions, attorney fees, appraisals, credit reports, prepaid interest, homeowner's insurance, title insurance and reserves that the lender collects for future taxes and insurance.  Each of these different aspects of closing costs can add up when you have made all of the payments towards your home or loan that you think is necessary.  It is estimated that closing costs will be an average of $3,000 to $4,000, depending on the types of inspections, insurance and documentation that needs to be prepared and finished before you can own your own home.   

The first fee which will be a part of closing costs is the appraisal.  This will give you an estimate of how much your home is worth at the time of closing.  It includes giving you information and documentation on what will be the highest and best use for your property.  These usually cost an estimated $300-$450, depending on the area in which you live and the value of real estate at that time.  A second fee will be the origination fee, the fee charged to you by the lender.  It is normally 1% of the loan amount.

Another type of fee to keep in mind with the closing costs is attorney fees.  Attorneys are used for the loan closing of the mortgage and usually review all of the documentation available for the closing costs.  Another cost will be for a broker.  This will be for the administrative, processing and transaction fees that take place between the broker and mortgagee.  If document preparation is performed by a third party, other than the broker, there will be another charge for this.  This may include documentation such as deed of trust, warranty deed, housing authority addendum, release of trust and power of attorney.  It may also include other closing loan contracts or documentation such as processing costs.  There is also a closing fee which is charged.  If the closing fee is closed by a third person, such as a real estate person, there may be a customary cost. 

Other costs will come from inspection of the home and insurance.  The most common type of insurance that you will need is home owners insurance.  This type of insurance is required to get at least one year in advance to protect the assets in your home as well as your home.  Title insurance is also required to buy once your home is off of the mortgage.  This will insure a lender of any liens on the property.  Loans will not be closed until inspections are made and this type of inspection and insurance is resolved.  Another possible type of insurance is those used for a flood plan.  If you are living in a flood zone, you must pay for flood insurance at the time of the loan closing.  There is also a possibility of getting a flood certification.  This will allow you to continue have flood zone status during and after the mortgage.  It will be paid at the time of closing.  Another type of insurance is hazard insurance premium which will be added in closing costs.  There are also inspection fees at the time of closing.  This includes a home inspection service fee, which usually is around $300.  Pest inspection may also be a separate fee which is included in the closing costs.  A third type of inspection that may be included is a well and septic fee, if this is part of your home. 

Another kind of cost which will be added during closing costs includes property taxes and assessments.  The most well known deposit for taxes is known as an escrow.  This is set up so that your taxes will continue to be paid after the loan and begin with a deposit at the time of closing.  Transfer taxes are the other type of taxes available at the time of closing. 

When looking into closing your mortgage, it is important to find the lowest fees and best way to get the documentation without having too much hassle.  There are several ways to get free quotes and to find the proper tools in order to keep closing costs down and make the process of owning your own home as simple as possible.