General Mortgage Fees
Written by Yun Yang   


Many home buyers are surprised to find that the down payment is not the only cash requirement for them to buy a home. Here is a guide to help your to be clear about what fees you must or may need to pay for your house.

Down Payment: The down payment is paid during the onset of the house purchase. It typically represents only a percentage of the full purchase price. This ensures that you have a monetary investment in the home, and are thus are more likely to try to keep it. Without a down payment, a person could potentially take out a loan on the entire house, live in it for a while, neglect all payments, and wait to be kicked out. Though such a person would ultimately end up with no home, he or she would not have lost anything, and would actually have gotten free housing for that period. The lender, however, would have lost out in buying the home at full market price, and then selling it in a foreclosure. Homebuyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.

Closing Cost: Buying a home involves more out-of-pocket costs than just the down payment. Closing costs are everything outside of the purchase price that a buyer pays to complete a real estate transaction. Fees range from those paid for title, escrow or lawyers; documentary transfer tax; city or county transfer or property taxes; credit reports; appraisal; recording or notary fees; real estate commissions; inspections; loan fees such as points and prepaid interest. As a rule of thumb, closing cost of buying a home is about 2 to 4 percent of the purchase price.

Principal and Interest: The major costs of a mortgage, no matter if it is based on a fixed-rate loan or a variable-rate loan, typically includes both principal and interest. Principal simply refers to the amount of money originally borrowed. Interest is a fee charged to the borrower for the privilege of borrowing money.

The interest rate is calculated as an annual percentage of the original amount borrowed. It will determine how much interest the mortgage holder will have to pay back on the loan. As the mortgage is gradually paid off, the amount of money that you are borrowing will fall and therefore the amount of interest will decline. It is therefore critical to get the best possible interest rate. However, this is complicated by the fact the best rates are accompanied by higher fees – the sneaky extra charges that mortgage providers throw in to increase their profits.

Tax and Insurance: Most mortgages also include real estate taxes and insurance. The property tax is assessed on real estate by the local government. It is usually based on the value of the property (including the land) you own. The amount of property tax owed is determined by multiplying the current net value of the property by the current tax rate.

The insurance component will include property insurance, which protects the home and its contents from fire, theft and other disasters. If 80% or more of the home's purchase price was financed through a mortgage, the insurance component of the monthly mortgage payment will also include an allocation for private mortgage insurance (PMI), which protects the lender by minimizing the risk to the lender if the borrower defaults on the mortgage. This safety net enables lenders to sell the loan to investors. 

Origination Fee: The origination fee is what the broker charges for facilitating the loan, normally between 1-2% of the loan amount. This is a fair fee for a broker's services, but unless you have a very complicated loan, paying 2% is too high, and you might want to look elsewhere. Since brokers need and want your business in a competitive market today, you can afford to be picky in whom you finance with.

Appraisal Fee: The appraisal fee is paid to a licensed appraiser who conducts the appraisal for refinance and purchase of a home. Depending on the state and appraiser, the cost can range from $300-500. Make sure you get a copy of your appraisal.

Processing Fee: The mortgage processing fee is paid to the mortgage company or loan processor for services related to preparing your loan application. The processor does all of the detail tasks for the loan, ordering title, insurance, the appraisal, and putting all documents together for the lender. It should cost between $300 and $500 and is part of your closing costs.

Credit Report: Like an appraisal, every home loan requires that a credit report be pulled on the potential borrowers. These fees differ between credit reporting companies, but normally range between $12-20 per borrower. Some lenders pay for credit reports for their brokers, so get a copy of your credit report to make sure it’s something the broker has actually paid for before they charge you. Brokers cannot charge you for a credit report fee unless they are actually being charged a fee by the credit bureau.

Underwriting Fee: A mortgage underwriting fee is charged by the lender who underwrites your mortgage. It is for underwriting, closing, and funding your loan. Some lenders charge an underwriting fee and other fees like the doc prep or wire fee. Doc prep is printing off the massive amount of papers making up your loan file. The wire fee is the fee for wiring the funds to the title company at closing. Other lenders lump all the fees into one and call it an administration or admin fee. It normally cannot be avoided, depending on the lender. Underwriting fees can be anywhere between $500 and $1000 depending on what they include.

Homeowner Association Fee: When you move into a neighborhood that has a HOA (Homeowners Association), keep in mind that you will also have Homowners Association Fees to pay. These fees are generally charged monthly or annually. Having these fees benefit you as the homeowner as well by keeping your community looking nice and well kept, which only helps with the value of your home. Check with your homeowners association if you would like to see where your money is going and what it is being used for exactly.

In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, repairs, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.



 
Last Updated on Wednesday, 16 February 2011 13:42