Different Mortgage Fees to Expect When Financing a Home

Common Costs You Should Know

Your mortgage will come at more expense than you may realize. Your lender will discuss these fees with you, but be prepared to ask questions in advance. Since you're entering into debt to buy a home, it's critical to know the true cost of homeownership and how it impacts you.

Here are some examples of the most common fees. 

Closing Costs

The largest component of most mortgage fees is the closing costs. These typically range between 2% and 5% of the total borrowed amount. It's important to factor in these costs when budgeting to buy a home, especially because this may need to be paid out of pocket at the time of closing. Some lenders will allow you to roll some or all of the costs into the loan.

Closing costs include a range of fees, including:

• Credit report fee: You may be required to pay a credit report fee, a one-time payment of around $30 to $50.
• Document preparation fee: This may cost between $50 and $100 and related to the administrative costs associated with establishing the loan.
• Loan origination fee: This fee covers the the application and completing the transaction, often around 1% of the total cost of the loan amount.
• Title fees: You may need to pay to transfer the title of the home to you. Title fees range widely by location but tend to be between $500 and $1000.
• Taxes: There are often taxes on the transaction. Some states require real estate taxes upfront as well as transfer taxes.

Annual Fees

To maintain your loan, you'll have fees to pay on an ongoing basis.

Some of these annual fees include:

• Interest charges: Each payment you make will have interest charges, either a fixed rate or a variable rate interest rate. The interest is paid monthly, but the overall cost is likely to be tens of thousands of dollars over the course of the loan's term.
• Private mortgage insurance: Most lenders offering conventional loans will require home buyers to pay private mortgage insurance if they're putting less than 20% down at the time of the purchase. This insurance product protects the lender in situations where the borrower defaults on the loan.
• HOA fees: Whether you're buying a home for retirement in a senior community or buying into a private development, HOA fees may be applicable. These cover the costs for maintaining the exterior parts of the community and any amenities shared by residents.
• Home insurance: Your lender will require you to maintain full coverage on the home. That helps to protect their investment in the property. Home insurance is very much dependent on the home's value and your area.

Prepaid Items

Prepaid fees are those costs you'll need to pay before you reach closing. This is often done to prepare the home for sale and the loan for availability.

Following are some prepaid fees you can expect: 

• Home inspection costs: You'll likely pay for a home inspection (though it's not always a legal requirement to obtain the loan). These usually range from $300 to $500.
• Pest inspection costs: Some lenders may require a pest inspection (usually around $150).
• Appraisal fees: In some situations, the lender will wrap these costs into closing costs, but other times, they need to be paid at the time of the appraisal. Often, these cost around $500.
• Home insurance: You may have to pay for some of your home insurance before closing takes place, as lenders want to be sure this policy is in place before you buy the home.

Mortgage Points

One factor to keep in mind is that some people may elect to pay points on their mortgage. If so, this is done prior to the closing of the loan. Points are a fee you pay to the lender upfront to lower the interest rate on your loan. This is called buying down the rate or buying down points. Most often, for every point you purchase, you're lowering the interest rate of the loan by 0.25 percent. How much points cost depends on the mortgage type and current rates.

Creating Financial Independence Means Knowing Your Personal Finance Education

Whether you hope to gain early retirement or you just want financial freedom from debt, it's always a good idea to focus on financial education. If you're unsure about any component of your mortgage loan fees, be sure to question the lender and the closing agent in advance. Ask for discounts. Request that fees are lowered. It may help you save a bit of money.

See how much you need to become a homeowner. Reach out to us today.