When you apply for a loan, most lenders will allow you to lock in an interest rate for a period of time, usually 30 to 60 days. The principal is the total amount being financed. When you buy a house, this is the purchase price minus the down payment. However, the principal can also include a variety of closing costs , also called settlement costs . These include fees for loan origination, document preparation, escrow, title insurance, credit reporting, document recording, pest inspection, appraisals, surveys, commissions, legal fees, insurance and property taxes.
Closing costs are always negotiable.
There are no hard and fast rules about these fees or about who pays them. Lenders often use a term called points to describe the loan origination fee, which can be one of the major closing costs. One point is equal to one percent of the loan amount. Points become part of the principal which has to be repaid over the term of the loan. Borrowers can often decrease or buy down the interest rate by paying more points.