Here are the closing costs you can expect when you sign for a loan, or “close a loan,” as the mortgage lingo goes. This is what you can expect in general and not specifically from us or another lender.
Please note we are a small, independent business and can refer you to other small businesses that might save you money. It never hurts to ask what you’ll pay. You will want to know the costs for each of these before deciding who to work with on your home loan.
Closing Costs Are Broken Into Three Sections
- Lender Fees
- Third-Party Fees
- Pre-Paid Items
Lender Fees for Closing Your Loan
- 0-2 percent of the loan amount goes to the lender for preparing the loan.
- $75 is for a tax service fee.
- $18 is for flood certification.
- $20 to over $200 for credit reports depending on whether your credit is excellent or needs work.
Third-Party Fees for Closing Your Loan
A third party is anyone at the table besides you and the lender. Third-party fees include:
- Around $2.50 per $1,000 of the purchase price of the loan will cover title insurance.
- $900 and up for an attorney depending on the attorney you choose (ask us for a referral).
- $100 to the county government to record the legal documents.
- $475 to $525 for an appraisal.
- $20 or less for a tax transcript.
At Closing You Pre-Pay Some Items Including the Following
- Interim Interest. Interim interest covers the interest on the home loan from the day you sign for the loan until the end of the current month.
- Escrow Account. Escrow is the legal term that acknowledges your lender is “holding” money from you in order to pay another party. Generally, your homeowner’s insurance and property taxes are held in an escrow account. The bank withdraws money from the escrow account to pay your annual property tax and homeowner’s insurance bill, and sends you an annual statement to show your running balance. When you sell your house, any money left in this account is returned to you.
- Homeowner’s Insurance. You choose your insurance agent and homeowner’s insurance policy, but have to pay the premium upfront for one year. When the next year’s premium is due, the bank pays it out of the escrow account (see above).
- Other Costs to Close. There are other costs that you may have to assume depending on your particular financial situation and personal choices (see below).
What’s the Bottom Line?
You can see there are some expert services needed. So what’s the bottom line? In North Carolina, it will cost you anywhere between $1,500 and $3,000 in most cases to obtain a home loan. New laws ensure the costs are clearly revealed to you, but you need to know where to look before and at the time of closing your mortgage.
It depends on the amount of time and energy you want to invest in lowering your costs. Go to the Consumer Finance Protection Bureau website for more tips.
Points
Some borrowers pay “points.” This is mortgage lingo to describe how you might lower your interest rate by paying more money up front. One point equals one percent of the loan amount. So if the loan were $200,000 one point would cost you $2,000 at closing. Usually one point at closing lowers your interest rate a quarter percent for the life of the loan.
Hint: Generally, points are a good deal if you plan to stay in the house for a long time and have the money. Points are a tax deductible expense.
Mortgage Insurance
Mortgage insurance protects the lender in case of default. If you are getting a home loan and put less than 20 percent down, you will be required to get mortgage insurance. If you only put 5 percent down, your monthly mortgage insurance will be higher than if you can put 10 percent or 15 percent down. You can go to our Monthly Payment Calculator to see the difference based on the down payment amount.
FHA loans all have mortgage insurance. In place of mortgage insurance, a VA loan has a one time funding fee which is just added to the loan amount. USDA has an annual funding fee (this is what USDA calls their mortgage insurance) for the life of the loan. However, it is based on the principle so each year it gets lower and lower. By year 29 of the USDA mortgage the funding fee is nearly nonexistent.
Again, take a look at the Monthly Payment Calculator to see how these fees apply.
First-time home buyers, clients with lower credit scores, and clients who want to make a low down payment, generally 3.5 percent of the value of the home, usually get an FHA mortgage. The Federal Housing Administration (FHA) is the largest mortgage insurer in the world. Roughly 30 percent of home loans are FHA mortgages. FHA guarantees the loan for the lender by issuing mortgage insurance. The monthly premium is added to the monthly mortgage payment. It is NO LONGER possible for the home buyer to cancel the mortgage insurance later in the life of the loan.
Closing Costs Others May Cover
Gifted Down Payment. In most cases, you can use a gift from a friend or relative for the down payment. Please contact a loan officer to discuss this option if you are considering gifted money to close your mortgage.
Seller-Paid Costs. Many buyers do not have enough cash on hand to cover the down payment or the cost to close the loan. The seller may pay a portion of any or all of these costs. The seller’s willingness to contribute, of course, is based on the motivation to sell the home.
Where Do I Find the Costs to Close?
- We always advise friends, family, and clients to get at least two quotes from mortgage lenders so you can compare their closing costs – as well as their interest rates.
- Compare your Loan Estimate (LE ) (see explanation below) line by line as early as possible.
- The document that shows your actual costs to close is called a Closing Disclosure (see explanation below).
- Ask for recommendations from friends and family for a good loan officer or mortgage broker.
Loan Estimate
Read your Loan Estimate (LE). This form documents all of your closing costs, but it’s not the final word. Federal law requires mortgage lenders to provide loan applicants with a LE of the closing costs within three days of submitting a loan application. The LE is your lender’s binding estimate of the final fees they’ll charge for originating your loan. Check again at closing to confirm no additional charges appear.
Closing Disclosure
Read your Closing Disclosure (CD). This form documents all of your closing costs, and is the final word. Federal law requires prospective mortgage lenders to provide loan applicants with a Closing Disclosure of the closing costs at least three days, excluding Sundays and national holidays, before closing. For example, if you receive the CD on Thursday, you would be able to close on Monday.
While the LE is your lender’s estimate of the final fees they’ll charge for originating your loan, the CD reflects the actual final fees. Page three of the CD compares the LE estimated closing costs side by side with the actual fees.
Closing Cost Comparison
If you have any questions about what you are being charged, we will happily take a look at your rate quote and GFE from us or any other lender and point out all costs to you. Just call the bank and ask for their rate quote, and then call Carolina Home Mortgage to compare.
We’re easy to reach and available after hours and weekends, too. If we can’t save you money, we’ll tell you so. It’s part of our pledge to serve the client.
Hint: Brokers like Carolina Home Mortgage have different rules than banks, as we disclose how much we are paid and how much of a credit we can get for you. Banks are not required to disclose this information.
Why Work With Us?
Carolina Home Mortgage is local and an independent small business. You’ll find our rates are low if you do the comparison. For 15 years we have helped clients become our neighbors. You don’t get to do that unless you offer quality and client-centered service.
Email your questions to
info@carolinahomemortgage.com
or call us. At the end of the day, we report to you, not the bank! We are available after hours and weekends, too.
Helping You Make Carolina Home!
