Home Equity Loan Closing Costs

Mortgage fees can be substantial; try to avoid sticker shock

The mortgage industry certainly provides a useful service to home buyers; without it, we would all be paying cash. In all likelihood, we would all be renting. On the other hand, the industry is a tremendously profitable one. There are many places that a mortgage company can make money off of a loan besides the interest on the principal itself. 

There are various fees and charges that can get tacked on to the cost of a loan and most of these show up at closing. It may seem counterintuitive, but one needs to show up at closing with a check for a lot of money. Why do you need to show up with money at an event that is supposed to provide you with money? That’s just one of the strange way the mortgage business works.

The buyer who is not aware of just how much it can cost to close on a home loan will be in for quite a shock when he or she sees the amount of the check that the mortgage company will require at closing. In order to eliminate a bit of “sticker shock”, we will outline a few of these closing costs below.

The Down Payment - The portion of the price of the house that the lender is not financing. In years past, this was typically about 20% of the purchase price, but in recent years that amount has become quite flexible. It is not unheard of for down payments to be as little as zero. Keep in mind that if the down payment is less than 20% of the purchase price, you will probably have to pay private mortgage insurance, or PMI.

Loan Origination Fee - This might just be called “lender profit.” It is a fee, often about 1% of the loan amount (or one “point”) that the lender charges for creating the loan. This amount is capped at 1% for FHA or VA loans. As it is a “point” this fee is tax deductible.

Appraisal Fee - The fee paid to the person who evaluates the property to ascertain whether or not it is worth the amount of the loan. Prices vary, but it typically costs $300-500, depending on your location.

Credit Report - The documentation of a buyer’s financial history, warts and all. The price at closing will probably be $50 or so, even though it doesn’t cost nearly that much to obtain one. 

Tax Service Fee - A fee to determine that taxes have been paid on a property. Generally assessed for sales of existing property, rather than for new homes.

Assumption Fee - The fee charged when a new buyer “assumes” or takes over, an existing loan from another buyer. This fee could run as high as 1% of the balance of the loan.

These are just part of the fees that will be assessed at closing on a home equity loan or a mortgage to buy a new house. The fees will typically run in the amount of several thousand dollars, and the buyer will be expected to show up with a cashier’s check in that amount at the time of closing. In part two of this article, we will examine additional costs associated with closing on a loan.