Closing Costs
Actual expenses the lender incurs in the origination of a new home loan.  Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants.  Other fees are related to the house itself, such as the appraisal of the property.  Others are payment to the lender for processing your application, such as the loan origination fee.  All these costs are lumped into a broad category called "closing costs."  Unless the seller offers to pay them for you, these expenses is charged to the buyer, and often run between 3 and 4 percent of the amount  borrowed.  Because different states have different fees and taxes that are a part of these costs, it's impossible to generalize nationwide.  It's important you talk with a reputable lender at the time of application about the costs you can expect to pay in your part of the country.

Loan Discount Points
One discount point, a form of prepaid interest, is exactly equal to one percent of the amount being borrowed.  It is paid in cash at closing to the lender as a form of interest.  Discount points have the effect of lowering the stated interest rate you will pay on the loan you obtain.  For example, a lender might offer you a 30 year fixed rate loan at 8% with zero points or the same loan at 7.5% with 2 discount points.  Because the points are considered interest, the yield to the lender is approximately the same.  Would you want to pay points?  You probably won't, but sometimes new home builders or employers offer to pay up to a certain number of points as an incentive.

Prepaid Items
Most lenders want you to set up what is called and "escrow" account.  This is nothing more than a savings account that the lender holds.  Every month you  deposit a sum for property taxes and for home owners insurance into this account in addition to your mortgage payment.  And when the next bill comes due for taxes or insurance, your lender makes the payment for you.  On the day of your purchase, you’ll  be required to set up an escrow account with about 9 months worth of taxes and about 2 months worth of insurance payments.  In addition, you’ll pay for the first year's insurance policy in full.  These costs are called prepaid items, and you must pay for them yourself.   Regulations and customs vary from state to state. Settlement costs may be more or less than the amounts discussed here.  Talk to a reputable lender to get an accurate estimate of how much cash you’ll need.