Watch out for “junk” mortgage charges


For most people, buying a home is daunting. After all, real estate transactions tend to be once or twice in a lifetime, so there is little opportunity to familiarize yourself with the process. You have mountains of paperwork to sign, industry jargon to decipher, and a variety of fast-speaking salespeople – from real estate agents to mortgage brokers – to deal with.

Somewhere between the excitement of buying a property and the boredom of signing forms, it’s easy to lose track of what you’re paying for and how much you’re spending. Aside from the mortgage, most of the other expenses come under a category called closing costs. Paying attention to these costs before you close can help you understand where your money is going and maybe even save you a few hundred dollars.

The central theses

  • Recurring closing costs are expenses that you pay when you close and each month thereafter, such as: B. Property taxes.
  • One-time acquisition costs are one-time payments such as points, rental fees, and home inspection fees.
  • Watch out for these five “junk fees”: excessive application, subscription, mortgage and loan processing fees, and broker discounts.
  • Some lenders offer a flat fee that covers all closing costs so you don’t have to worry about the fairness of every single fee.

Closing costs: what are they?

Closing cost is an abbreviation of the total cost of several dozen of potential expenses associated with buying and financing real estate. These expenses can be divided into recurring and non-recurring expenses.

Recurring costs

Recurring costs are paid on completion, then monthly. These include real estate taxes, homeowners insurance, and – if you’re paying less than 20% of the purchase price – personal mortgage insurance (PMI), which you want to avoid if possible. (The consumer finance bureau [CFPB] offers advice on PMI and how to remove it.)

These expenses must be pre-funded at the time of purchase by depositing funds into an account to cover the next year’s obligations. This is known as depositing the money. Also, depending on your closing date, you may need to pay interest upfront to cover your first few days or weeks in the house.

One-time costs

One-off costs are also paid upon completion. They can include:

  • Points
  • An application fee (profit for the lender)
  • A range of loan fees (these may include an issuance fee, a valuation fee, a credit report fee, a tax service fee, a subscription fee, a document preparation fee, a transfer fee, office administration fee, etc.)
  • A broker’s service fee (if you are working with a mortgage broker)
  • All home inspections required by the lender (e.g. pest inspection)
  • The cost of a lender-mandated property appraisal (which involves paying someone to verify that the property is worth at least as much as the selling price)

Other costs upon completion

Closing costs can also include:

  • Federal Housing Administration (FHA) fees
  • Veterans Affairs Fees (VA)
  • Rural Housing Service (RHS) fees associated with government-guaranteed mortgages
  • A flood detection fee to investigate whether the property is in a flood prone area
  • A land survey to check the property lines
  • Title Fees (including a title comparison fee, a title search fee, a title review fee, a closing service fee, a certificate creation fee, notary fees, a title insurance fee, and all legal fees)

A variety of other miscellaneous costs may include a courier / delivery fee, endorsements, admission fee, transfer tax, and an optional home guarantee.

How high are the closing costs?

The fees vary widely depending on the lender, the geographic location of the property, and the price of the home. Use the CFPB’s Your Home Loan Toolkit as a guideline for evaluating fees. Business Insider has also broken down the average closing fees by state; The diagram can give you a guideline based on the location of your home.

What are “Junk” Charges?

Garbage fees, also known as junk fees, are pinned to most mortgages. There’s no way you can avoid them completely, but you can often minimize them.

Look out for excessive processing and documentation fees in the following five categories:

If any of these fees seem unusually high to you, ask about them as they are often negotiable. This notice also applies to other fees. If it looks weird, ask for it. Mere questioning of the fee often results in the fee being lowered or abolished.

If you think a fee is too high, try negotiating it down. Simply questioning a fee often results in it being reduced or eliminated.

All-in-one closing cost pricing

Given that consumers are overwhelmed with fees and frustrated trying to determine if those fees are reasonable, some lenders are now offering a flat fee that covers all closing costs. “All-in-one” terminology is also used to describe other mortgage products, such as current account-linked mortgages. Use caution when purchasing these products and ensure that you are purchasing the product that is for mortgage closing costs only and not for any other banking relationship or product.

As a rule, you can expect 3 to 6% of the purchase price for closing costs.

Minimize the pain

If the property market in your area is favorable to buyers, you may be able to ask the seller to pay the closing costs. If that’s not an option, an all-in-one mortgage is probably the best way to minimize the feeling of being taken advantage of during the closing process. You’re still paying the fees, but you don’t have to despair about fee after fee.

Compare purchases are another way to familiarize yourself with the process and get a better sense of the cost. Ask half a dozen lenders for credit estimates, and then compare the results. This will help you learn the terminology and get a feel for the range of graduation fees in your area. Once you have decided on a lender and have a loan estimate on hand, save it. It will come in handy later.

The bottom line

The official form that contains a breakdown of all closing costs is called a closing statement or closing disclosure. You have the right to view this document at least three working days prior to completion. Request it and compare it to the loan estimate. If the numbers aren’t reasonably close, ask questions.

By taking the time to do a comparison shop and carefully reviewing all of the documents in advance, you can minimize the hassle and anxiety associated with the closing costs of buying a property.

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