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Loan-Related Closing Costs
Loan Origination Fee
This covers the administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.
Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.
Appraisal Fee
The fee for having the house appraised may be incorporated into the closing costs or payment may be required by the lender at the time the loan application is submitted.
Credit Report
The lender uses a credit report to determine the creditworthiness of the loan applicant. This fee is often paid when the loan application is submitted.
Interim Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15, interest accrual will begin that day. Your first payment however will not be collected until July 1st. That payment will bring your accrued interest current for the month of June. The interest accrual from May 15th through May 31st will be calculated and charged as a line item on the closing statement. As a result this charge is added to your closing costs. Scheduling your closing towards the end of the month will lower your closing costs because there are fewer days to calculate the interim interest. Some lenders will also permit you to receive an interest credit if you close by the 5th business day of the month. For example, if you close on May 5th, your fist payment will be due June, 1st. On the settlement statement the lender will give you a credit for 5 days of interest since you will need to make a full month's payment on June 1st.
Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.
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