Settlement costs are fees that must be paid in the process of closing a mortgage. What’s interesting about these fees is that they vary in price and can be negotiated just as the selling price of the house can be. It is for this reason that it’s good to learn as much as you can about them and how the closing process works to get the must bang for your buck out of the deal.
The Basics of Closing a Mortgage and Settlement Costs
The process of closing a mortgage can be overwhelming to say the least. There are often many people involved in the process, as well as a number of documents, and of course your settlement costs, to take care of before all is said and done. Because the cost to close a mortgage can be so high, you as the homeowner have the option of negotiating the fees with your lender, attorney, and/or settlement agent. Overall, you can usually expect to pay between 3% and 6% of the price of your home.
What Fees Are Included in Settlement Costs
There are a number of fees that are associated with settlement costs when closing a mortgage. Many of these fees can vary depending on the mortgage terms, and your region. However, here is a peek at a few that you might run across:
- Application Fee. The application fee is usually imposed by your broker or lender and is meant to cover the process charges associated with your loan request. This cost typically falls in the range of $75 to $300.
- Loan Origination (Underwriting) Fee. This fee equals between 1% and 1.5% of your loan amount and is charged for the lender’s work in preparing your loan.
- Appraisal Fee. Costing between $300 and $700, this fee pays to have your future home appraised.
- Points. One point equals 1% of your loan and is imposed by the lender to reduce the interest rate. Usually homeowners pay between 0 and 3 points.
Understanding settlement costs can lower the shock you may experience when you notice all of the fees you have to pay while closing a mortgage. So take time to learn more about them to avoid underestimating the amount you must pay.