Financial Words of the Week: Points, Origination Fees and Closing Costs
All three of these terms refer to costs associated with applying for a loan. Lenders sometimes charge these fees to cover the cost of underwriting, appraisals, document preparation and other parts of the process. Generally, the fees will be higher with mortgages than other loans. Mortgages have more complicated requirements compared to other loans. Origination fees are one-time flat fees that cover the costs of processing the loans. By comparison, closing costs may include expenses associated with the real estate transaction that cannot be included in the mortgage amount. A point is one percent of the dollar amount financed. Lenders may let you pay points to lower the interest rate or they may charge points instead of origination fees. Some examples of possible closing costs:
- Appraisal: The cost of hiring a real estate professional to determine the value of the house
- Inspection: Hiring an engineer or building professional to examine the structural condition
- Flood Certification: By law, every mortgage made through federally-regulated or insured lenders must include a flood certification. This assessment determines if the property resides in a high-risk flood area. Homeowners with mortgages in high-risk areas must have flood insurance.
- Realtor Fees: Real estate agents are paid based on the cost of the house, normally around 3 percent of the selling price.
Mortgage laws vary greatly from state to state. Additionally, each mortgage lender has different products and offers. Because of these complex issues, your costs may be different from those listed above. The best way to learn more is by working with an experienced mortgage loan officer. They can walk you through the full process and help you understand the costs involved. Be sure to check the blog for our “steps to buying your first home” series. So far, we’ve covered Pre-Approval (Step 1) and Choosing the Loan that’s Right for You (Step 2).
UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.