Mortgage Closing Costs

Mortgage closing costs are the costs you will need to pay when you apply for, qualify for, and take a mortgage loan. Mortgage closing costs can roughly be broken down into two categories: recurring costs (fees that you'll have to pay again and again), and nonrecurring costs (one time fees).

Mortgage Closing Costs

In terms of nonrecurring costs, probably the most significant fee is the loan origination cost. This is usually one percent or more of the total loan value. When your mortgage loan originates, you also have the option to buy points, or discount points as some lenders call them. Buying points lowers your interest rate, resulting in lower payments for the duration of your mortgage. If you intend to stay in your home long term, buying points may save you thousands over the course of your loan. However, this can be expensive so you will want to calculate your projected savings and determine if you can afford to pay these additional fees at the time of closing.

An appraisal and inspection are also nonrecurring mortgage closing costs. An appraisal assesses the value of your home, while an inspection looks at the structure of the home to ensure that it is sound and that no large unforeseen problems will arise. If your home was recently built, your lender may also require a 442 inspection to ensure that the house is up to spec in terms of flooring, structural integrity and so forth.

Other nonrecurring costs include the credit report check fee, mortgage broker costs, and document preparation costs. Depending on your situation, you may also have to pay additional lenders fees. For example, the mortgage underwriter- the person who evaluates your creditworthiness and the riskiness of the loan- will likely charge you around $300 to administer the loan.

Be aware that lenders can tack on exotic fees, such as warehousing charges. Ensure that you read your mortgage contract carefully to identify all of these potential fees and mortgage closing costs. If you notice a series of unexplained fees, you may want to insist that your lender eliminate or at least bargain down these fees before you commit.

When purchasing a home, you may also want to pay for an assessment to determine your property tax costs. You will have to pay property taxes annually, and depending on where you live and the size of your home, these costs can add up to several thousand dollars per year. Knowing what to expect is essential in determining whether you can afford your home, so hiring an independent company to assess these costs is often a good investment. Typically, an assessment will cost you approximately $100.00.

Recurring Mortgage Closing Costs

In addition to your monthly mortgage payments and property taxes, you will also be responsible for other monthly costs, such as homeowners insurance. Most lenders require you to have homeowners insurance, and the cost of your policy premium is often added to your monthly mortgage payment. Furthermore, if you put down less than a 20 percent down payment, you will also have to pay private mortgage insurance (PMI) which will be added to your monthly mortgage payment. You will be responsible for paying PMI until the equity that you have in your home- or the amount that you own instead of the bank- reaches 20 percent.

Paying Mortgage Closing Costs

Remember that just because these fees and charges are designated as closing costs doesn't mean that you have to pay for them all out of pocket now. You can often wrap them into your mortgage, and include them in your monthly payments. However, remember that you will have to pay these mortgage closing costs one way or the other, so the more of these mortgage closing costs you can get out of the way earlier, the less complicated your loan situation will be down the line.

Original article found at Superpages.com