Guest Post: 4 Home Loan Fees to Be on the Lookout For
For most people, buying real estate is something you do once or twice in your lifetime, giving you few opportunities to familiarize yourself with the process. You are swamped by mountains of paperwork to sign, a strange new vocabulary to deal with, and numerous fast-talking sales people – from real estate agents to mortgage brokers – who smile, point and tell you where to sign.
It’s an exciting time, but it’s all too easy to lose track of what you’re paying for and how much everything costs. Aside from the mortgage, there are numerous charges lumped into ‘closing costs’. Let’s look at four home loan fees to be on the lookout for; this may save you a few hundred dollars.
What are Closing Costs?
Closing costs are the several dozen potential expenses associated with purchasing and financing real estate. They are categorized as “recurring” and “nonrecurring.”
Recurring costs not only get paid at closing, but also on a monthly basis thereafter, and include real estate taxes, homeowners insurance, and, if you’re putting less than 20% down, private mortgage insurance (PMI). These expenses need to be paid in advance at the time of purchase, so put them in an account to cover next year’s obligations.
Nonrecurring costs are also paid at closing. These include:
- Application fee
- Loan fees such as appraisal, credit report, and underwriting fees
- Any lender-required inspections
- Broker’s service fee
- Federal Housing Administration (FHA) fees
- Veteran’s Administration (VA) fees
- Title charges
- Land survey
Most Common Fees
The four most common home loan fees are:
- Application fees
- Appraisal fee
- Private Mortgage Insurance
- Prepaid Interest
How much should they cost?
The Federal Reserve Board provides some general guidelines for how much these fees should cost:
- Application fees range from $75 – $300 (including the cost of a credit report for each applicant)
- Appraisal fees range from $300 – $700
- Private Mortgage Insurance can be up to 1.5% of the loan amount prepaid and between 0.5 – 1% of the entire loan amount annually.
- Prepaid Interest varies depending on loan amount, interest rate and number of days that must be paid. $300 – $700 is not that uncommon.
How to Save:
- Try and make a larger down payment to avoid PMI. If you can afford to make a 20% down payment, do so. PMI is hard to cancel, can be expensive, and offers no real benefits.
- For lower appraisal fees, direct your loan officer to work with local appraisal companies. Local appraisers have a deeper knowledge of the surrounding neighborhood and will likely be more readily available for the home inspection, to speed your appraisal process.
- Negotiate with the seller to reduce closing costs. They may be willing to pay your application or appraisal fee for a better deal.
- Look for special deals on lenders websites. You might be able to apply for free or save on the cost of a credit check. Try to apply direct if possible, rather than going through a broker. You can compare deals online and go straight to a lender if there’s a particular deal you want to apply for. Don’t let a pushy salesperson force you into a bad deal.