Too often I find that people get caught up in what interest rate they are paying and they don't understand all of the other costs involved in purchasing their home and obtaining financing. Make sure that when you initially meet with your lender that they tell you about ALL of the fees that they will charge you, as well as the fees that they will consider third-party fees. Some of the costs that will be incurred for your home purchase can be negotiated in the real estate sales contract. But if you don't know what the fees are before you make an offer to purchase, you can't negotiate with the seller about them, can you? But worse than that, if you haven't planned ahead for these costs, you may not have enough money to actually close on the loan. I can't stress enough how important it is for you to talk to your lender and find out about these costs before you ever make an offer on a house.

Lender-related Costs

After you make application with a lender, they will mail you what's called a Good Faith Estimate. This will give you their best estimate of what your loan will cost. Shortly before your closing, you will also be sent a HUD-1 Settlement Statement that will have the exact costs so you will know how much money you will need to bring to closing. The following are typical lender-related costs that you need to be aware of.

• Loan Origination Fee
  The origination fee is charged by some lenders on some loans, but not on others. The fee may be a flat dollar amount or it may be figured as a percentage of the loan. It is meant to cover administrative costs of processing the loan.
• Loan Discount Points
  Some borrowers will choose to pay points up front in order to get a lower interest rate for their loan. One point equals 1% of the loan amount.
• Application/Processing/Underwriting Fee
  These are some of the different names that will be given to fees that may be charged by your lender. Basically they are fees to cover administrative costs for preparing, processing and approving your loan.
• Document Preparation Fee
  As the name says, it's a fee you can be charged for preparing the documents that will be required to close the loan.

Third Party Fees

Although your lender is technically not charging these fees to you (they are just collecting them), they are fees that are going to have to be paid in order for you to get your loan.

• Appraisal Fee
  A professional appraiser will be sent to the property you are borrowing money against to determine its value.
• Credit Report Fee
  Your lender will order a credit report on you to see your credit history. This helps them to determine if they want to lend you money.
• Mortgage Insurance
  This is an insurance policy that is typically required if you are getting a loan with less than a 20% down payment.
• Flood Check Fee
  This covers the cost of checking to see if the property is located in a flood zone.
• Closing/Escrow/Attorney Fee
  This fee covers the cost of the services of whoever actually handles all of the closing of your loan.
• Abstract or Title Search
  Before a lender is willing to loan you money against a piece of real estate, they will want a search done that will check for liens, restrictions or other problems with the property.
• Title Insurance
  The premium for the insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
• Homeowner/Hazard Insurance
  Typically your lender will require that you pay for the first year of your homeowner's insurance before closing.
• Recording Fees and Transfer Taxes
  These are fees that are charged by the state and localities for recording liens and transferring property.
• Notary Fee
  Covers the cost of having a licensed notary public certify the signing of your closing documents and signature.
• Survey Fee
  Fee charged by the surveyor if there is a survey done on the property.
• Inspection Fees
  These are charges for the various inspections that may be required by your lender or in some cases just inspections that you choose to have. They could include property, pest, water and septic tank inspections.

Pre-paid costs

When you purchase a home, there will be some charges that the lender will call "pre-paids" and include the following items.

• Pre-paid Interest
  You usually will not make your first mortgage payment until the second full month after closing on the loan. For example, if you close on May 20th, your first payment may not be due until July 1st. At closing, the lender will require that you pay the interest from the date of closing until June 1st.
• Escrow Accounts
  Some mortgages are set up in such a way that when you make your payment, you are not only paying principal and interest, but also homeowner's insurance and property taxes. This money gets put into an escrow account and then when the insurance and taxes are due, the money is sitting there and the bills can be paid. At closing, a lender will typically require 2 to 4 months worth of these payments to set up the escrow accounts.
• Property Taxes
  Property taxes are typically prorated between the buyer and seller at the time of closing.