Three Big Costs Associated With Your Home Loan

We all write down, log, and mentally burn into our minds the amount of our home loan. What we often forget though, are the costs associated with getting a home loan. It’s not only what the loan document says, but also a bunch of other, smaller, but still significant, costs. Here is a list of the three biggest costs associated with your home loan.

Closing costs: Closing costs are related to the loan application and the house itself. Application costs include updated credit reports for all of the applicants, paying the lender to process the application, and a loan origination fee. Additionally, you must pay to have the property appraised. This usually costs 2-3% of what you are borrowing. Talk to your lender ahead of time about these fees so you are fully prepared to buy your home.

Loan discount points: Loan discount points are basically prepaid interest. One discount point=1% of what is being borrowed. The point must be paid in cash to the lender at the time of closing as interest. These points lower the stated interest rate on your loan. You probably won’t want to pay points, because it doesn’t really save you any money, but, in some cases, new home builders or employers offer to pay a certain number of points for you as an incentive to buy.

Prepaid items: On the day of your purchase, the lender will require you to set up an escrow account, which is a savings account that the lender holds and that the buyer puts money into for property taxes and homeowners insurance; this is in addition to the regular loan payment. On the purchase day, the lender will require you to deposit enough money into this account to roughly cover 9 months worth of taxes and 2 months worth of insurance. Additionally, you will be required to pay in full for the first year’s insurance policy.

This information was found on


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