How Mortgage Closing Costs are Calculated

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Mortgage closing costs are costs that are required on all mortgage loans. Depending on the loan, these costs can add up. Understanding how they are calculated will help you determine between a good and bad loan. Mortgage closing costs are divided into buyer and seller transaction fees. The fees include items such as: lock-in fees, appraisal fees, credit report fees, title fees, mortgage points, private mortgage insurance, property taxes, deed change and interest charges from closing to the date of the first mortgage payment. These are included in the "settlement fees" listed below. When you purchase a home, you will see a breakdown of these costs from the mortgage company and your attorney. Many of these costs are prepaid as they are associated with the process of the loan.

For example, if you purchase a $200,000 home with a $180,000 mortgage, the break down could look something like this:

  • Sales price: $200,000
  • Mortgage: $180,000
  • Down payment: $20,000
  • Settlement fees: $15,000
  • Total Due at Closing: $35,000

If you want to lower your closing costs, you will have to negotiate with the lender and the other third party providers.