Mortgages: closing costs and closing points explained 

by Greg Cryns

It is good for you to know the basics of closing your home or business loan. Closing costs can be very confusing so it's time to bone up on the subject.

You can expect the closing costs to be about 3 to 6 percent of 

the total amount of the loan, the total money borrowed. They amount does not include your down payment.

Closing costs include all of the expenses that must be paid before the purchase of your new home is completed.

Here is a list of other closing costs:

1. Application fee - this is what you pay to have your application approved. It may not include your credit report. This is what you pay to have your loan processed.

It does include your loan origination fee or "points". A "point" is 1% of the total loan. So, if you borrow $100,000 and you are charged two point, you will pay $2,000 for that expense. 

Some lenders offer the option to pay more to eliminate the points. Check into it. Your personal credit report may be included in the application fee but not always. This costs up to $30.

2. Title insurance - this is always a requirement of the lender to loan you money. It protects you and the mortgage company in the event that the seller is legally prohibited from selling the property. Some possibilities included unknown co-owners and liens against the property. Sellers are often ignorant of such factors when they put their house on the market. Liens are often smaller amounts that are beneath the seller's radar. 

The cost of title insurance can vary. Check at least two sources.

3. Appraisal fee - The lender requires the appraisal to be sure that the value of the house is worth at least the loan amount. Typically costs up to $500.

4. Homeowner insurance - always required for a loan. If an earthquake eats your house the bank wants to know it can recoup its investment. You will have to prepay for a one year policy. If your down payment is lower than the norm you may have to buy private mortgage insurance.

5. Real estate property taxes - You will need to bring the paid taxes up to the date of the sale because you are billed one year after the taxes are due. This can be a substantial portion of your closing costs. 

5. Attorney fees - If you hire an attorney to help you close, the fee will be a closing cost. An attorney is an option. I think it is a necessity as it can be a dangerous world out there. I always hired an attorney for my closings so I didn't worry about the details but I did want a general idea of what was going on just in case my attorney was asleep at the wheel.

6. Survey fee - if required, you will need to pay for it. This can cost $400 or more. 

7. Hidden costs - these may include but are not limited to courier fees, notary fees, documentation fee, overnight delivery fee, points, processing fees. Make sure you are not overpaying for these fees. Ask your attorney to check them.

8. Closing fee - this is to pay the bank or title company to provide a place for the closing. Usually around $400.

9 Transfer Taxes - tax on the title transfer. The cost varies widely.

Greg Cryns is the owner of Flat Fee Real Estate Guide - http://www.flatfeerealestateguide.com