Lenders require home buyers to have an insurance policy to protect the home in case of storm, flood, fire, and so forth. If the home is damaged, the lender loses their collateral. Lenders may add the price of the home insurance to the mortgage payment or ask for it as a lump sum at closing.
Buyers may be required by the lender to get the property inspected for problems that have to be fixed before the lender extends the mortgage. Inspectors might evaluate the structural soundness of the home, the health of the mechanical and electrical systems, and a pest or termite inspection. Buyers may pay for these inspections at closing. There may also be the option to pay for the inspection when it is performed, so check with your lender.
Title research and insurance
In Texas, title research and insurance can cost up to about $2,000 for a property valued under $1 million. The home buyer pays for policies both for the lender and for themselves to guarantee that the property title is properly assigned.
Loan application fee
Lenders charge a fee just to get started on a loan application, typically $25- to-$150. This pays them for the work they have to do to start the application process and helps cover the cost of their time in case customers aren’t eligible for a loan or decide not to go forward. If the loan is successful, many lenders may waive this fee.
This costs around $300-to-$500. The lender will hire an appraiser to make sure the home is worth what buyers are paying for it. They don’t want to lend more money than the house is worth. This is part of the cost of creating a mortgage, so lenders pass it on to buyers, though, sometimes they include it under the "umbrella" of a loan origination fee.
Loan origination fee
About 1% of the mortgage. Different lenders include different things in this fee. Like they might say that having a home appraisal was part of originating the loan and include that, or they might put the appraisal in its own separate category. It can also include the cost of a credit check, paying people to notarize documents, and other things they have to do to get all the information collected and organized.
This fee is sometimes tucked under the loan origination fee as well, but it costs between $400 and $900 on its own. If the buyer has good credit and earns enough money to cover the house payment with their other debts, this is often a pretty straightforward process and the price will be on the lower end. But if there are issues, like no credit history or some credit challenges, the underwriter will have to look more in-depth at the buyer’s finances to justify approving the mortgage. This extended process may cost more.
PMI or MIP
These are insurance policies lenders charge when the buyer has less than a 20% down payment. These can either be added to the mortgage payment or paid at closing in a lump sum. How much buyers pay for this insurance policy depends on many factors, such as the size of the loan, the amount of down payment, their credit score, and more. PMI stands for Private Mortgage Insurance and is typically required on non-FHA loans until the homeowner reaches 20% equity in the home. MIP is Mortgage Insurance Premium. MIP is a requirement for the life of an FHA loan, which is why FHA loans are often refinanced after 20% equity is obtained.
There are two kinds of points. One is origination points which is a fee paid to compensate the loan officers; the other is an amount paid to discount the interest rate of the mortgage. Origination points are often the same as origination fees—it’s just a different term for paying for the work the lender did to get the buyer’s mortgage together.
The other kind of points is called discount points. Discount points is money paid upfront to reduce the interest rate, similar to the way the down payment effectively lowers the principal amount of the loan. Many buyers do not pay points at all.
There are other fees sometimes incurred such as legal fees, wire transfer fees, broker fees, court filing fees, and the like. One estimate has all fees in Texas costing around $2,000, but that depends on the particular situation.
It can be difficult to compare apples-to-apples when looking at good faith estimates or loan estimates that use different terminology and have different prices. The important thing is for buyers to work with a lender they trust. Buyers should discuss possibly eliminating or restructuring costs they find daunting, and make sure they understand exactly what they’re paying for. A good lending officer will always walk buyers through the costs. If you’d like more help understanding closing costs, let us know!