Among the many apprehensions that come with becoming a homeowner, especially for first-timers, are the loan fees. It’s easy to lose track of expenses in the midst of all the other paperwork, but it’s important to be extremely mindful and well-informed in order to keep your budget on track.
Besides the good faith deposit, other types of expenses that you will need to pay out are known as closing costs. It’s important to note that there are different types of loans, such as FHA and VA loans that make the seller cover some or all of certain closing costs. For the rest, there are several types of fees included, knowing the fee breakdown in advance will be beneficial and help to be as cost effective as possible.
Here are some of the most common types of closing costs and the details:
Mortgage Application Fees
The buyer pays this fee to the lender, sometimes even prior to closing. This fee covers the processing of the loan application by the lender, which also includes the payment for the credit report for the borrower. If a lender charges an unjustifiably high application fee, it couldn’t hurt to ask to split with the lender or get a discounted fee.
Lenders require a proper appraisal of a property as part of the mortgage loan process. This is done to verify the value of a house and if it fits within the loan limits and terms of the property you are looking to buy. Buyers are frequently charged this service upfront as a third party is needed for the service.
A property inspection is another requirement by the lender, which is to be paid by the buyer but can also be negotiated to be paid by the seller in certain cases. This is done by professional home and pest inspectors to ensure that the house is in good condition, and able to retain its worth. If this is something that may hold up the purchase process a buyer may choose to just pay up front out of pocket for the inspection to keep the process moving along.
Title Service Costs
Both the buyer and seller may pay these charges, which include title search, title insurance, and other related services. In certain situations, attorneys can be the one to perform these services, which would then combine the title service costs with the attorney’s fees. These fees are incorporated in the closing costs and are paid at closing.
Legal documents require attorneys to ensure that these are prepared correctly. Buyers, sellers, and lenders may be represented by their own attorneys, who would then assist in preparation, recording, proofreading, and verifying all necessary documents.
Prepaid Home Insurance
The buyer pays the initial payment for home insurance. The amount depends on the price of the house and property, but sometimes requires the buyer to pay in advance for a whole year as part of closing costs. Sometimes depending on your loan terms you can incorporate the insurance into your monthly mortgage payment.
Loan Origination Fees
Think of this as a commission payment for the lender. This is generally comprise of 1-1.5% oft the loan amount and is paid by the buyer/borrower.
The best move on your part, especially if it’s your first time purchasing a home, is to get in touch with a reliable mortgage company that will provide not only all the necessary information you need to make an informed decision but also educate you on the process. Having transparency, integrity, and competency, in order to provide you with the lowest rates possible minus hidden fees. A good company should be able to provide you with everything you need to know about a purchase loan, from pre-approvals to choosing the best loan program.