When you take out a mortgage for a home, the principal and interest rates of the mortgage make up most of the costs of buying a home. Some of the fees you pay upfront, while others are included in your monthly mortgage payments.
Some costs are directly linked to getting the mortgage. However, there are other costs of homeownership that the lenders do not control. You would pay these costs even if you didn’t have a mortgage like property taxes and homeowners’ insurance. These payments are combined into your mortgage payments but are not part of the mortgage payment. They are paid through an escrow account.
You also may have to pay for mortgage insurance depending on how much down payment you made. Anything less than 20% requires mortgage insurance. If you’ve made a higher down payment (of at least 20%), you don’t have to pay for this because it covers the lender’s risk in case you default on the loan.
There are some upfront costs you’ll have to bear if you’re getting a home loan:
Down payment: A big part of this is a down payment (20% or less depending on the type of loan you apply for).
Origination fees: The origination and lender charges are the fees for granting you the loan. It is also part of the cost of borrowing from the lender. This could include origination, application, processing, and administration fees.
Mortgage points: Mortgage points are upfront charges you pay to lower your overall interest rates on the mortgage. This is also calculated as a percentage of the borrowed amount.
Third-party closing costs: These include costs of appraisals and title insurance.
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