Mortgage Settlement
Lender-Related Closing Costs and Fees


Most people associate closing costs with mortgage loan charges. These fees and charges vary, so it pays to shop around for the best combination of mortgage terms and settlement costs. Lender-related closing costs that may apply to your loan include the following items:

Application Fee: Imposed by your lender or broker, this charge covers the initial costs of processing your loan request and checking your credit report. Estimated cost: $75 to $300, including the cost of the credit report for each applicant.

Loan Origination Fee: Also called underwriting fee, administrative fee, or processing fee, it is charged for the lender's work in evaluating and preparing your mortgage loan. This fee can cover the lender's attorney's fees, document preparation costs, notary fees, etc. Estimated cost: 1% to 1.5% of the loan amount.

Points: A one-time charge imposed by the lender, usually to reduce the interest rate of your loan. One point equals 1% of the loan amount. For example, 1 point on a $100,000 loan would be $1,000. In some cases--especially in refinancing--the points can be financed by adding them to the amount that you borrow. However, if you pay the points at settlement, the points may be deductible on your income taxes in the year they are paid (different deduction rules apply when you refinance or purchase a second home). In your purchase offer, you may want to negotiate with the seller to have the seller pay your points. Estimated cost: 0% to 3% of the loan amount.

Appraisal Fee: This fee pays for an appraisal of the home you want to purchase or refinance. Lenders want to be sure that the property is worth at least as much as the loan amount (ask your lender for a copy of your appraisal). Some lenders and brokers include the appraisal fee as part of the application fee. If you are refinancing and you have had a recent appraisal, some lenders may waive the requirement for a new appraisal. Estimated cost: $300 to $700.

Lender-Required Home Inspection Fees: The lender may require a termite inspection and an analysis of the structural condition of the property by an engineer or consultant. In rural areas, lenders may require a septic system test and a water test to make sure the well and water system will maintain an adequate supply of water for the house (this is usually a test for quantity, not for water quality; your county health department may require a water quality test as well, but this test may be paid for outside of the settlement). Keep in mind that this inspection is for the benefit of the lender; you may want to request your own inspection to make sure the property is in good condition. Estimated costs: $175 to $350.

Prepaid Interest: Interest costs start as soon as you settle, even though your first regular mortgage payment is usually due about 6 to 8 weeks after you settle (for example, if you settle in August, your first regular payment will be due on October 1; the October payment covers the cost of borrowing the money for the month of September). The lender will calculate how much interest you owe for the part of the month in which you settle (for example, if you settle on August 16, you would owe interest for 15 days--August 16 through 31). Estimated cost: Depends on loan amount, interest rate, and the number of days that must be paid for (a $120,000 loan at 6% for 15 days, about $300; a $142,500 loan at 6% for 15 days, about $356).

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