Loan Articles

What are mortgage closing costs, apart from the costs we most often overlook? Mortgage closing costs are part of the mortgage settlement process and are sometimes referred to as settlement costs. They apply to home purchases as well as mortgage refinancing. Sometimes they are quite high, so it is a good idea to look around for the best settlement services and negotiate with lenders, sellers, and settlement agents. It really does pay to do this because the lower your closing costs are, the more money you will have to invest in your new residence.

It pays to be good at haggling, so make efforts to perfect the art of negotiating. During settlement, buyers and sellers are free to negotiate which party pays which costs. Sometimes sellers agree to cover costs that are usually assumed by the buyer, especially if they are in a hurry or are desperate to sell for some reason. All agreements reached should be put down in writing. Keep in mind that if the seller assumes some of the costs, the property price may go up if he decides he wants compensation for them. Settlement practices and services vary depending on your location, but as a rule of thumb, closing costs are generally about 3 percent of the sales price of the real estate property. If you are living in a region with higher taxes, this rate may be as high as 5 percent up to 6 percent.

Settlement costs include private mortgage insurance and homeowner’s insurance. If you have a low credit rating, this can and often is a great deal more expensive. This is why, it helps to know your credit score. It will be easier for you to understand how lenders assess your applications and how that score will affect the closing costs and the loan cost in general.

There are many different types of settlement costs. They are often associated with mortgage loan charges, which vary greatly, and this gives you all the more reasons to shop around for the best loan terms and closing costs.

One settlement cost is the loan origination fee. It is also known as the processing fee and is charged for assessing and preparing the loan. The charge includes the lender's attorney fees, notary charges, document preparation costs, and more. Another settlement cost is the points, a one-time fee that aims to reduce the interest rate you pay throughout the loan term. For instance, one point on a $500,000 loan will come to $5,000. If you pay this sum at closing, it is deductible on your income taxes the year you pay them.

If you want to calculate your mortgage closing costs, you can do this with the help of an online closing costs calculator. You can enter the costs for the purchase of the property, including its price, the down payment, the contract deposit, and the mortgage balance. Then enter all non-recurring costs, for example escrow fees, attorney fees, points, title insurance costs, and property inspection fees. Finally, enter all recurring costs, together with prorated fees such as prorated interest, mortgage insurance, property insurance, and the payment for the first month.

After you click compute, the calculator will display the total amount due in recurring payments, closing costs, as well as the total amount of cash.