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A home purchase at the national median value of $198,000 requires an average of $7,227 in mortgage closing costs. We arrived at this figure by collecting mortgage estimates from several major banks and direct lenders. Major components of the closing costs on a home loan include prepaid taxes and interest, as well as discount points and service charges.
- Average Closing Costs on a Home Loan
- Average Mortgage Lender Fees
- Average Third-Party Mortgage Fees
- Average Prepaid Mortgage Costs
Average Closing Costs on a Home Loan
Each closing cost falls into one of three categories: lender fees, third-party fees and prepaid funds for taxes or mortgage interest. Although we looked at each closing cost individually, it's helpful to group your upfront mortgage expenses into one of these broader groups.
Bank of America
|Taxes and Prepaids||$3,038||$2,710||$2,988||$3,227||$3,021|
To determine an average figure for each closing cost, we collected home loan estimates from the four largest banks in the US. Our scenario assumes a loan at the median US home price of $198,000, with a down payment of 10% and a credit score of 740. Other assumptions for property tax and escrow requirements were plugged into the estimate of prepaid costs, which are explained below.
While there are several factors that can significantly raise or lower your closing costs, we found that mortgage discount points are the one area that offers you the most control as a borrower. While lenders didn't show much variation in third-party costs or prepaid expenses, their quoted interest rates relied on very different amounts of points.
Average Mortgage Lender Fees
Lender fees amount to an average of $1,387 based on our results from the four largest banks. These include the origination fee and the cost of any discount points required on your mortgage rate, which moves down according to the number of points you purchase. Not all banks provided estimates for all fees.
Bank of America
Since the amount you spend on discount points mostly depends on your individual preference, we focused on the differences in origination fee among the banks we surveyed. Most of these large institutions charge a flat fee of $1,000 or more for their origination services, although Chase charged a much lower $595. While these lenders all used a flat fee for origination, other lenders sometimes set this fee at 1% of the total loan amount.
Average Third-Party Mortgage Fees
Most of the individual items you'll see on a mortgage loan estimate fall into the category of third-party fees, which averaged $2,819 in our analysis. The largest fees include title insurance for the lender and the cost of appraising the property, which make up over half the total cost of all third-party expenses. Banks do not control these fees, and there is opportunity to save by comparing across other vendors. We've provided brief explanations of the less obvious items below.
Bank of America
|Lender Title Insurance||$1,215||$1,215||$1,383||$1,475||$1,322|
|Assignment Recording Fee||$259||$150||-||$188||$199|
|Closing Service Letter||-||$250||$125||$125||$167|
|Tax Service Fee||$89||$87||$87||$100||$91|
Settlement/Escrow Fee: This fee is paid to an attorney, escrow holder or title agent who manages the process of closing. The total cost of these services is split between the borrower and the seller, which means that this fee may be negotiated.
Assignment Recording Fee: A government fee paid to your local recording office, which creates an official record of the deed transfer from the seller to the buyer. Although estimates varied by bank, the recording fee should be the same for all properties in one jurisdiction.
ALTA Endorsements: The American Land Title Association issues these endorsements to provide specific additional guarantees to the lender's title insurance policy. While ALTA endorsements may not apply in every mortgage scenario, they can cost about $175 and change very little from lender to lender.
Closing Service Letter: This has nothing to do with you as the borrower, but instead acts as a guarantee from the title insurance underwriter to the mortgage lender. It simply proves that the closing agent or title insurance agency is legally able to provide title insurance to the lender.
Tax Service Fee: A tax service agency takes this fee to verify that there are no outstanding tax liens against the purchased property. Lenders require the tax service fee because if a defaulting borrower is delinquent on property taxes, those taxes are deducted from the foreclosure sale and reduce the amount recovered by the lender.
Average Prepaid Mortgage Costs
Prepaid costs cover insurance, property taxes and prepaid interest on your mortgage. Although we saw an average of $3,021 for prepaid mortgage costs, these can vary a great deal depending on your particular closing date. Some of these funds will be held in an escrow account to ensure that your monthly tax and insurance payments are made on time.
Bank of America
|Property Taxes (6 months)||$1,980||$1,980||$1,980||$1,980||$1,980|
|Prepaid Interest (15 days)||$266||$284||$275||$293||$280|
|Homeowner's Insurance (1 yr)||$792||$446||$672||$893||$701|
|Mortgage Insurance (1 month)||-||-||$61||$61||$61|
|Total Prepaid Mortgage Costs||$3,038||$2,710||$2,988||$3,227||$3,021|
Your closing date affects both your prepaid interest and your property taxes. Prepaid mortgage interest is calculated for each day between closing and the date of your first monthly payment, while property taxes are collected at various dates depending on your jurisdiction. Pushing your closing date to the end of the month reduces prepaid interest, but reducing your upfront tax bill is harder to manage. If you close a mortgage just one or two months before property taxes come due, your lender may require you to put the entire amount in escrow ahead of time.
Homeowner's insurance and mortgage insurance premiums also go into your prepaid costs. Lenders typically require up to 1 year of homeowner's insurance premiums upfront in order to guarantee continuous coverage. Mortgage insurance usually comes into play if your down payment is under 20%. In most cases, the first month of mortgage insurance must be paid for as part of your closing costs.