Help first-time homebuyers better understand financing closing costs.
What are closing costs?
Put simply, closing costs are expenses over and above the interest rate on the mortgage loan. The closing costs on a home purchase are collected by the lender and cover services performed by either the lending institution or an outside party, such as a home appraiser.
How much can closing costs on a home purchase add to a real estate transaction?
The national average of closing costs is between 2% to 5% of the mortgage. So, on a $200,000 mortgage, closing costs can add up to $10,000.
What is included in closing costs?
To cover their expenses in processing loan applications, mortgage lenders often charge an application fee and loan origination fee. Some origination fees are a flat rate, and some are a percentage of the loan value.
Are “points” on a loan part of the closing costs?
Formally called “discount points,” they are technically prepaid interest on a mortgage loan and can be part of closing costs. Each point equals 1% of the loan value. But it’s more useful to think of points as a way of “buying” a lower interest rate.
For example: You are looking at a 30-year fixed mortgage at 4.00%. If you are willing to pay an additional point – that is, $2,000 on a $200,000 loan – the rate drops to 3.75% Those willing to pay 2 points ($4,000 in this example) get a rate of 3.5%.
Speak with an expert on the topic and contact one of the knowledgeable loan officers at First Hawaiian Bank today. www.fhb.com/en/personal/mortgage.