The cost of a home loan mortgage has three main components:
 |
|
Financing costs
|
| Loan Origination Fee: Our brokerage, All Square Mortgage, decided to use the “Lender Paid” method for loan origination fees. That means that all pricing received by our clients will be net of all loan origination fees, because the fees will be built into the pricing and the lender you select will pay our fee.
Loan Cost or Credit: Lenders often have a wide range of interest rates on a single loan program. They charge a fee (described in ‘points’) for lower-than-average rates, and give money back when a higher-than-average interest rate is chosen.
Miscellaneous Fees: Most lenders will charge a fee for the following items/services; appraisal of the home to be purchased, credit report, underwriting the loan (dissecting the risk and ability of the borrower to pay back the loan).
Closing Costs: Closing costs are paid to a neutral third party, known as escrow, for the services involved in packaging and documenting a loan file; they will include fees for title, settlement, and recording services. |
 |
 |
|
Prepaid items
|
|
“Prepaid” means “items paid before they are due”; the three below are most common.
Homeowners Insurance: Most lenders will require payment of the first year of insurance premiums plus a deposit of an additional 2 months.
Property taxes: Generally you will deposit three to four months worth of property tax prior to closing.
Interim interest: This is the interest owed on the mortgage loan for the days between the closing date and the end of the month. |
|
 |
|
Down payment
|
| What is it? This is the largest single figure of money you will spend at closing to buy your new home. It, plus your mortgage loan amount, equals the cost of your new home, so the lender views it as the percentage you can afford as an upfront investment in a new home.
How much should it be? Most lenders offer loan programs which require between 5% and 20% down payments. If the down payment is less than 20% the lender will require you to buy private mortgage insurance (PMI); the cost for this will be added to your monthly mortgage payment. Loans are available with lower or even zero % down payment. |
|
|
