Your house search is over, and the mortgage application process has been underway for a while. Now it’s crunch time: the home appraisal, the final walk-through, and signing on the dotted line. Nothing more to worry about, right? Not quite. Closing costs, or settlement fees as they are also known, have a way of creeping up on you. These fees offset the final expenses incurred by the lender and seller when you purchase a home. Whether you’re looking to refinance your current loan or purchase a new home, there will be closing costs. Here’s a breakdown of what fees the closing cost can include.
What Are Closing Costs?
Closing costs are the fees associated with buying or selling a home. These costs cover the lender’s expenses, such as appraisals and credit checks, as well as the seller’s costs. Closing costs can vary pretty significantly depending on where you live but can add up to thousands of dollars.
Loan Origination Fee (LOF)
The LOF is a percentage of the total loan amount that goes toward paying for the work done by the lender to get your new mortgage funded. This fee can be paid out as one lump sum or broken up into multiple payments throughout the life of the loan. If you’re paying your LOF in installments, it will be added to your monthly mortgage payment until it’s paid off in full.
Appraisal Fee
Your loan application is submitted and approved by your lender, but now they need to make sure there’s enough value in your home so that they don’t lose money if it goes into foreclosure later down the line. To do this, they hire an appraiser who takes a look at comparable properties in your neighborhood and determines how much yours would sell for if listed.
Document Preparation Fees
These fees cover all the paperwork involved in processing your loan application, including reviewing your credit report, verifying employment income and tax returns, verifying assets such as checking accounts and savings bonds and reviewing any delinquent debts.
Homeowner’s Insurance Premium
Your lender may require you to find and purchase home insurance before they approve your loan. Home insurance coverage typically includes damage to your property, including loss from theft or vandalism, and liability coverage.
