Closing Costs: Closing costs are usually 2.00% - 2.50% of your loan amount. These are the one-time costs to obtain your mortgage. These costs are usually in the range of several thousand dollars or more.
Prepaid Expenses: At the time you close your home loan, you will be paying the interest and property taxes owed on your mortgage and new home at that time. This includes a full year of your homeowner's insurance premium. Most loans require that your homeowner's insurance and property taxes be included in your monthly house payment. In order to have enough in your escrow/impound/reserve (all the same thing) account at the time each is due, the necesary months of each will be collected at the closing table.
Closing Costs and Prepaid Expenses can be written into your purchase contract so that you do not need to pay all or some of these costs. Your real estate broker will advise you if this is a good thing to ask for in your offer.
Mortgage Insurance: If your down payment was less than 20% (Conventional Loan) or you are obtaining an FHA mortgage, you will be required to have mortgage insurance. Mortgage insurance allows you to buy a home with little down payment and is protection for the lender against you defaulting on the loan. Mortgage insurance can be removed at some point. You would contact the lender who is servicing your loan for their requirements to remove the mortgage insurance. Federal law requires that mortgage insurance must be removed when the loan is 78% or less of the value of your home at the time the loan was started.
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