Carefully Assess Each Fee
Buying a home and obtaining a mortgage can be overwhelming. There are forms to sign and a multitude of fees involved. While closing costs vary by state, some of the costs may be disputable or negotiable.
Some nebulous charges or fees that are commonly associated with mortgage loans are often referred to as junk fees or garbage fees. For example, a lender may present you with a low percentage rate offer that has an extraordinary amount of junk fees. If you don’t understand what fees are and mean, then you may be taking a loan that isn’t the best option for you.
It’s of the utmost importance that you work with a reputable loan officer. You may want to ask for previous client recommendations and check the Internet for any negative information associated with the lender.
Within three days of applying for the loan, your lender should give you a good faith estimate. From the good faith estimate, you will know what your APR (annual percentage rate) will be. You will want to find out what costs have been included in the APR, especially if it seems abnormally high. A good faith estimate is essentially a listing of the closing costs that will be needed to secure the loan. You should carefully assess each item for validity, while also attempting to negotiate better terms on other items.
Here are 13 of the most common fees in a good faith estimate:
1. Loan Origination Fee – Most mortgage brokers and lenders have some sort of loan origination fee. It may be included in the APR or a separate title. The amount often varies based on how much work the lender/broker did to secure your financing. For example, those with exemplary credit may have a lower origination fee because the lender didn’t have to do as much work to secure their loan. On the other hand, a broker/lender trying to secure financing for someone with questionable or low credit will usually work much harder to secure a loan.
2. Application Fee – A usually upfront fee that covers the cost of appraisal and pulling your credit report. Some lenders will refund this fee in the event your application is denied. This fee will vary per lender, but it shouldn’t seem unreasonable.
3. Attorney Fees – Your attorney will usually represent you during the mortgage process, notarize the documents involved in the closing, record necessary information with the county, and possibly facilitate the actual closing. The attorney fees pay for those services and any amount due to other parties involved.
4. Document Preparation Fees – The charge for document preparation may be separate or included under the application fee or attorney fee. Just check to make sure the fee isn’t imposed under more than one title.
5. Processing Fee – This is often a camouflaged way of charging another loan origination fee to cover the incurred overhead costs of the lender.
6. Discount Points – You will pay for points (a fee equal to one percent of the loan amount) upfront. You’re actually prepaying interest on the loan, thereby getting a lower interest rate in return. One point on a $200,000 mortgage would cost you $2,000 dollars. Points may be a prudent route if the mortgage will be paid over a long period of time. This is another fee commonly found under the APR.
7. Mortgage Insurance – Lenders may require anyone not putting at least 20 percent down to purchase mortgage insurance. The fee will usually be paid in full at closing or annually from an escrow account. It too may be one of those fees included in the APR.
8. Escrow Account – Think of this fee as a forced savings account of sorts. The account serves as a middleman between you and the county for property taxes, you and the homeowner’s insurance company for premiums, and so forth. The money, which is a portion of your total mortgage payment, is held by the lender in the escrow account until the payment is due. This is a way that the bank can ensure that bills related to the mortgage are paid.
9. Pre-Paid Interest – It’s usually best to schedule the closing date for the end of any given month. Gaps between the date of closing and when the mortgage loan payment is due at the first of the month may leave you paying the amount of interest incurred during the gap. It too may be one of those fees included in the APR.
10. Title Insurance – This is a necessary evil. It must be bought to cover you and the lender. It makes sure that the property title is free and clear of any claims or liens so that someone can’t come along and make a legal claim of ownership on the property after you’ve taken a mortgage out on it. Occasionally, title insurance is covered by the seller, but more often than not the purchaser is responsible for it. However, the policy rate may be less if the previous owner only owned the property a short time and the insurer is willing to reissue the policy to you.
11. Flood Certification Fee – A certification stating if your potential home is in a federally designated flood zone.
12. Pest / Termite Inspection – Aside from termites, it will cover water damage and wood rot.
13. Surveyor Certificate – A certificate that defines the parameters of your potential property. This will be necessary if the existing survey is outdated or if the property has never had one done.
Information courtesy of David Bender…Mb Financial Bank…Branch Sale Manager…614-893-4868
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