What Costs Do I Have to Pay at Closing?

Purchasing a home is usually the biggest purchase most people will make in their lifetime, and securing a mortgage loan comes with many costs that need to be factored into the equation. When you are trying to determine how much you need to budget for, there are some costs that you should be aware of before you close on your home.

Down Payment

This is the amount of cash that you are initially putting towards your new home. Depending on the type of loan you are taking out, the amount of the down payment could be different. Generally, the more money you are able to put down, the better the loan terms you will receive.

Interest Rate

The interest rate is a percentage of the loan that you will be required to pay back over the term of the loan in addition to your principal. This percentage is determined by the lender and is based on your credit score, income, and other factors such as the amount of the down payment.

Mortgage Insurance

Mortgage insurance is required on all loans that have a down payment of less than 20%. This insurance protects the lender in the event that you are unable to make the payments on your loan. The cost of the insurance is usually added to your monthly payments.

Closing Costs

The closing costs include all of the fees associated with the closing of the loan. These fees include the appraisal fee, title search fee, and recording fees. Other fees may include homeowner's insurance and prepaid interest. Most closing costs can be estimated so that you know what to expect when it comes time to close on your loan.

Pre-paids

The pre-paids are the expenses that you will need to pay upfront when you close on your loan. These include pre-paid taxes and insurance, as well as any other fees that may be required by your lender. These fees will be calculated based on the amount of time between the closing date and the next payment due.
When you are trying to budget for your home purchase, it is important to take into consideration all of the costs associated with securing a mortgage loan. Knowing the down payment you need to make, the interest rate on the loan, and all of the fees associated with closing on the loan will help you determine how much cash you will need to complete the purchase.