Mortgage costs are fees that real estate transactions incur when it is time for them to close. The point for closing comes as the seller transfers the title to the property over to the buyer. Mortgage costs can be absorbed by the seller or the buyer. A number of different expenses go into these overall costs.
The amount for mortgage costs ranges dramatically based on the property the individuals are buying and where they live. They cover many different expenses. There are fees for such things as credit reports, attorney costs, and appraisals. A survey fee pays for the expense of confirming where the property lines are. Pest inspection fees pay to check for termites and other home damaging insects.
Credit report fees pay for running the borrower’s credit. Inspections may be requested by the lender or the buyer, and there is a fee for these. With the loan origination fee, lenders receive their compensation for handling all of the loan paperwork on behalf of the borrower. They receive a separate amount called an underwriting fee when they evaluate the application for the mortgage loan.
Other mortgage costs have to do with discounts, titles, and escrows. Discount points turn out to be optional fees that borrowers pay to receive a more favorable interest rate on the loan. A title search fee pays to have a background check performed on the title to ensure that there are no problems like tax liens or unpaid mortgages attached to the property.
Lenders also insist on title insurance. This insurance protects them against a title that turns out not to be clear. The recording fee goes to the county or city to compensate them for adding the update to the land records. There could also be an escrow deposit. This provides for several months of the private mortgage insurance and property tax costs.
Even though mortgage costs vary wildly from one region to another, it is still possible to estimate how high they will be. Home buyers can anticipate commonly paying somewhere between two percent and five percent of the final price of the house in closing fees. This means that if a house costs $200,000, the mortgage costs could run from $4,000 to $10,000.
The law requires that lenders provide home buyers with a Loan Estimate that covers the amount that these fees will approximately be. They must do this in three days or less of accepting the loan application. These are estimates that will change on a number of the fees.
Three business days or more before the closing occurs, the lender will provide borrowers with a Closing Disclosure statement. This covers the actual closing fees. It is a good idea to hold this up to the original Loan Estimate to contrast the expenses. The lender should explain every item on the fees, why they are important, and why they differed from the original estimate.
In many cases, a significant number of these costs can be negotiated. Some of them can even be removed as unnecessary. This includes fees such as courier, mailing, and administrative costs that the lender is attempting to collect. Borrowers always have the option of walking away from this particular loan if the fees seem high and unreasonable. Other lenders will be agreeable to provide competitive loans with more reasonable fees.
There are also no closing cost mortgages. In these, borrowers are able to sidestep the fees upfront when they close on the loan. Lenders still make money by exacting a higher interest rate or by rolling the costs into the whole mortgage. This last method causes borrowers to pay interest for the mortgage costs as well. Sellers can occasionally be persuaded to absorb the fees at closing.