Closing Costs and Points Explained!

One of the great mysteries of home buying, at least to those who have never been through the process, is closing costs.  While nearly everyone has heard of them, few who haven't had to pay them really understand them.  Even some people who have paid them aren't sure what they spent all that money on.

Closing costs are the various fees that a homebuyer must pay before the mortgage lender will finalize the mortgage.  Generally speaking, these costs are about 3 to 6 percent of the amount borrowed.  That is in addition to your down payment. 

Following are some of the components of your total closing costs.

The lender will charge an application fee to cover the costs of completing your mortgage application.  This may or may not include the fee for your credit report.  They will also charge a loan origination fee, also known as points.  This covers the administrative costs of processing your mortgage.  One point is equal to 1% of the total amount loaned.

Many lenders offer the option to purchase without points, but keep in mind that this will result in a higher interest rate.  There are also lenders who will let you pay additional points to lower the interest on your loan.

Need articles for your website? We offer articles such as this one in a bundle package!