Closing costs include the origination charge, discount points, out-of-pocket expenses, and prepaid items.
- Origination charge. The amount that includes all charges (other than discount points) that all loan originators (lenders and brokers) involved will receive for originating the loan. This charge covers items including fees, document preparation, underwriting costs, and other expenses. If you qualify, you may be able to finance the origination charge as part of your mortgage amount.
- Discount Points. Calculated as a percent of your loan amount, discount points are an option if you want to pay to reduce your interest rate. Discount points are charges paid to the lender voluntarily, usually at closing by the borrower or the seller. One point is equal to 1 percent of the loan amount.
- Out-of-pocket expenses. These cover third-party services, such as fees for appraisals, attorneys, credit reports, deed recording, and tax services.
- Prepaid items. This category includes homeowners insurance, private mortgage insurance, and deposits for establishing an escrow account.
- Depending on the closing date, you may prepay some interest and pay property taxes at closing.
- An escrow account is established by the lender to help you to save toward your property tax and homeowners insurance instead of paying the entire amount at once.