Mortgage Loan Costs and Fees

If you're in the market for a mortgage, you'll need to allocate several thousand dollars to pay for fees and closing costs. While specific costs will differ from state to state and from lender to lender, there are a number of fairly standard costs you can expect, including:

• Credit report fees. This is simply the cost of obtaining your credit report. You will usually pay for the lender’s copy, but you should obtain copies for yourself before you ever start shopping for a mortgage. Get copies from all three major credit companies and review them for mistakes. If you find discrepancies, clear them up before you apply for a loan. Learn more by reading What Is a FICO Score and How Does It Affect Your Mortgage?

• Appraisal fee. This pays the independent appraiser who provides a value for the house.
• Application fee. You pay this fee to your lender to process your application. This often includes the credit report fee and the appraisal fee.
• Lock-in fee. If you find a low interest rate and want to lock it in while the lender reviews your application, you can pay to have the lender hold that rate for you for a specified amount of time.
• Loan origination fees. This covers the processing of the mortgage and can often be negotiated.
• Prepaid interest. This payment covers the interest that accrues between the closing and the start of the next month. The later in the calendar month you close, the lower this amount will be.
• Points. Also referred to as discount points, these are 1 percent increments of the overall loan. You may be required to pay points as part of the mortgage agreement or elect to pay points to lower the interest rate. Review the information in Should You Pay Points?
• Attorney fees. You may want to enlist the services of an attorney. Prior to working with your attorney, get an estimate of his or her fees to review the mortgage agreement, negotiate with the seller (if necessary), and handle the closing.
• Closing costs. Most costs listed here, including the application fee and others mentioned above, are included in the closing costs. Also, the title search, document preparation, wire transfer fees, and recording fees are among the other closing costs you can anticipate.

Your lender will provide you with a good-faith estimate of closing costs in advance. Review it carefully and make sure you don’t pay twice for the same service. Closing costs are typically 2 to 6 percent of the purchase price of the house. But you will likely incur other costs, such as those associated with gathering your own documentation. Most experts recommend that you have about 6 to 8 percent of the cost of the house available in funds beyond your down payment.