Mortgage Closing Costs - How They are Calculated

Mortgage closing costs are the costs associated with processing, evaluating, and accepting your home loan. The total cost of settlement fees depends on the amount of money that you are borrowing and the city and state that you are making the transaction in. Closing costs usually equal 2 to 7% of your total property value. Depending on your negotiations, you or the lender will be responsible for these costs. Usually the borrower is responsible for paying these costs.

Costs Associated With the Loan

The monthly payments, at the agreed upon interest rate, associated with your loan must be made regularly for the entire term of the loan.

If you decide to use discount points or origination points, you will pay 1% of the total loan for each point at the closing. The lender will charge you a specific processing fee, which you can negotiate at the beginning of your transaction. You will need to pay the lender for preparing documents, underwriting, and any wire tranfers that must occur over the course of your negotiations.  

You will need to pay to get your credit report and also to get your home appraised. If your lender or broker provides title services, you will have to pay to obtain title insurance. If not, you will need to go through a different company to get your title. A title examines the history of the property and includes a review of deeds, legal records, and other documents. Sometimes you will also have to pay a fee to have your property surveyed.

When you close a loan, you need to pay for an attorney to check the terms of the loan. The attorney will work on both the borrowers and lenders behalves. You will also need to pay taxes on the loan.

Depending on your lender, you may have to pay to assure that your property is not in a flood zone. You may also have to pay recording and transfer fees to cover the paperwork used in your transaction.

If you use a broker to negotiate your loan, you will also have to pay overhead to this person. The broker will give you a list of markups associated with his/her services.

Costs Associated With Your Location

If you live in New York, Hawaii, Alaska, New Jersey, or Florida, you will pay the highest amount for closing costs in the country. If you live in South Dakota, Kansas, or Wyoming you will pay the lowest amount for closing costs in the country. Sometimes, at the closing, you will have to pay property taxes, which vary from location to location.