Understanding Hidden Costs in Mortgage Closing
When closing on a home, it’s crucial to understand all potential costs involved in the transaction to avoid surprises. Here are several hidden or less obvious fees you should inquire about when reviewing your closing documents:
- Loan Origination Fees: Charged by the lender for processing the new loan application, typically about 0.5% to 1% of the total loan amount.
- Points: Paid upfront to lower your mortgage rate; each point costs 1% of the mortgage amount.
- Appraisal Fees: Paid to determine the property’s fair market value, not always included in the initial loan estimate.
- Title Insurance: Protects you and the lender if there are problems with the title to your property.
- Survey Fees: Verifies property lines and details such as encroachments or easements, necessary depending on the location and last survey.
- Credit Report Fees: Charges for accessing your credit report, which can add up especially if multiple checks are required.
- Escrow Deposit: Funds held for future property taxes and homeowners insurance, often a substantial initial deposit.
- Underwriting Fees: Covers the cost of evaluating a mortgage loan application, sometimes detailed as an administrative fee.
- Attorney Fees: In some states, a real estate attorney must be involved in the transaction, varying greatly in cost.
- Courier Fees: If documents need to be transported quickly to complete the transaction, courier fees can be added to your closing costs.
- Pest Inspection Fees: Required in some states and by some lenders to check for termite and other infestations.
- Prepaid Interest: The interest that accrues on the mortgage from the date of settlement to the beginning of the first monthly period.
- HOA Fees: If the property is in a community with a homeowners' association, there may be fees for dues or community initiation fees.
Tips for Mortgage Applicants
Always ask for the Closing Disclosure form well in advance of the closing date. This document outlines all the fees you’re responsible for and must be provided at least three business days before you close on your home. Reviewing this form allows you to question any items and understand all costs.
Conclusion
Being informed about these hidden costs can help you budget more accurately and navigate the home buying process with greater confidence.
