There are 3 main categories of closing costs.
Out-of-Pocket Expenses…Fees For:
- Lender Costs – underwriting, processing, appraisal fees, and points
- Title Costs – owners and lender title insurance, endorsements and closing fees
- Government Costs – recording fees, intangible tax and documentary stamps.
- Other Miscellaneous Expenses – usually a performance by a third party and directly charged to the borrower: survey, inspections, etc.
- Homeowner’s Insurance – 1st Years Premium
- Private Mortgage Insurance – in some cases
- Costs to set up an escrow account – Escrow accounts are a service provided by your lender which they use to pay annual insurance and real estate taxes on the borrower’s behalf.
A mortgage points equal to 1 percent of the mortgage loan amount. When you pay a point it actually helps reduce the loans interest rate. For example, paying two points on a $100,000 mortgage would require an additional $2,000 up front at closing. But this would cut your monthly mortgage payment. If you obtained the same loan amount at zero points, the interest rate and monthly payment would be higher, but there would not be any additional up-front costs at closing. It usually takes 4 years to break even by paying 1 point to have a lower monthly payment.