The Components of Closing Costs for Your New Home Loan

By Kelly Richardson
LoanPage.com Columnist

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Closing costs, sometimes referred to as settlement costs, are a crucial part of the mortgage process and a requirement to acquire a new home loan. Here is a rundown of the various components of closing costs and how they might vary from lender to lender.

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There are a couple of good reasons to become familiar with the components of closing costs. First, it's always a good idea to know how much money you'll have to come up with to close on a new home loan and where your money will be going. Second, you might have to shop for settlement services. This means that the closing costs might vary depending upon which settlement company you go with. With some savvy comparison shopping, you might be able to reduce the amount of closing costs on your home loan.

Mortgage Closing Costs

  • » Broker Commissions. This is the percentage of the total mortgage cost that is paid to a broker or agent. Commissions are typically paid for by the seller. So unless you are selling a previous home, you'll be safe from these charges.
  • » Loan Costs. These are fees you'll pay your mortgage lender for services associated with processing and approving your home loan. These will vary widely from lender to lender and include loan origination and discount fees, appraisal fees, credit report fee, and assumptions fee.
  • » Advanced Fees. These fees require advance payment and include such items as interest, mortgage insurance (if required), hazard insurance, and flood insurance.
  • » Escrow Fees. These are charges associated with setting up your escrow account. An escrow account is a separate account set up by a third party to collect all preliminary mortgage fees paid for by both buyer and seller.
  • » Title Management Fees. For an attorney and title search company to ensure that no liens or other monetary holds are associated with the property changing hands, title management fees must be shared by both buyer and seller.
Always consult your lender for any other fees associated with the mortgage process, as they will vary widely by company and by area.

Sources
Buying Your Home: Settlement Costs and Information

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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