Mortgage-Related Closing Costs

Depending on your situation, the following costs for getting a mortgage must be paid at or by closing. These costs cover items that were part of the loan application process:

• Loan Origination Fee
  The loan origination fee covers the administrative costs of processing the loan. It may be expressed as a percentage of the loan (for example, 1 percent of the mortgage amount).

• Loan Discount Points
  Loan discount points are the dollar amount paid to a lender for making a loan. Each point equals 1 percent of the mortgage amount. For example, if you take out a $100,000 loan, one point equals $1,000. The more points you are willing and able to pay at closing, the lower your interest rate should be.

• Appraisal Fee
  The appraisal fee pays for the appraisal, which the lender uses to determine whether the value of the property is sufficient to secure the loan should you default on the loan. This is usually paid by you when you apply for the mortgage and may appear on the settlement form as "POC," or "paid outside closing."

• Credit Report Fee
  The credit report fee covers the cost of the credit report, which the lender uses to determine your creditworthiness. You probably also paid this fee when you applied for the mortgage, so it may appear on the settlement form as POC.

• Assumption Fee
  An assumption fee is charged if you take over the payments on the seller's existing loan. The fee may range from several hundred dollars to 1 percent of the loan amount.

• Prepaid Interest
  Interest is the fee you are charged for borrowing money from your lender. You will probably have to pay the interest on the mortgage from the date of settlement to the beginning of the period covered by the first monthly mortgage payment. For example, suppose you settle on February 10. Your first monthly payment begins to accrue on March 1 and will be payable at the beginning of April. At closing you may be required to prepay the interest for the period from February 10 through the end of February. This means that if you settle later in the month, your closing costs will be less than if you settle early in the month.

• Escrow Accounts
  Escrow accounts (or reserves) will be required if your lender will be paying your homeowner's insurance and property taxes. Your lender sets up the escrow account by adding the cost of the insurance policy and taxes to your monthly mortgage payments. That portion of your payments is kept in reserve until the bills are due. Each year, the bills will be sent directly to your lender, who will make the payment for you.