Home Loan Closing Costs May Be Surprising

The whole purpose of taking out a mortgage is to borrow the bulk of the purchase price of a house. Most houses sell for prices that are well beyond the amounts the people keep in their bank accounts, so taking out a loan to buy a home is pretty much inevitable. And yet many homebuyers are astonished to discover just how much cash they are required to bring with them when it comes time to close on the loan. It does seem rather counterintuitive that one would have to bring cash to a loan closing. After all, the purpose of the loan is to receive money, isn't it? And yet, the costs associated with taking out a loan must be paid and convention dictates that those costs be paid when the loan is signed. If you are not expecting it, a call from a loan officer, saying, "Closing is tomorrow. Don't forget to bring a cashier's check for $15,000" can be pretty shocking. Here is a short list of things a buyer may be expected to pay, in cash, when closing a loan:

The down payment - This is the portion of the price of the house not covered by the loan. In years past, this figure might have been 20% of the purchase price or more. Now, in some cases, there may be no down payment at all.

Loan origination fee - The fee that the lender charges to create and process the loan. This fee is typically about 1% of the loan amount.

Appraisal fee - The fee charged to assess whether or not the house is worth the seller's asking price. This fee may run $300-500, depending on the market.

Property inspection fees - A charge of a few hundred dollars to assess whether the home is structurally sound. This may cover an inspection of plumbing, electrical or sewage systems as well as a foundation or roof inspection.

Private mortgage insurance - Charged on loans that cover 80% or more of the purchase price, this insurance protects the lender from default by the buyer.

Miscellaneous fees - This covers copying documents, postage, courier fees, notary fees and other miscellaneous office expenses.

All of these fees can add up to quite a lot of money. The well-informed buyer would do well to ask, in advance, just how much money he or she will be expected to provide at closing. As the sum can easily amount to 5% of the purchase price or more, most buyers will sufficient notice to gather the funds in order to have them ready on time. The last thing any buyer wants is to be unable to close because he or she cannot provide the proper funds at closing. It is best to be prepared.