Expect the unexpected. Anticipate the hidden costs by researching the real estate and mortgage markets.
Keep in mind that there are hidden costs and that you have different options to deal with them. The best way to avoid Hidden Fees is to ask and receive a complete breakdown of costs from both the lender and the escrow company at the time you open escrow and begin securing finances. Lenders are required to immediately send you a document called "good faith estimate". Take the time to review each charge carefully. Challenge the ones you don't find appropriate or that you don't understand. Don't wait until it is too late. Do your research ahead of time.
Hidden Extra Fees
1. Application Fee: Many mortgage applications do not require an application fee. Although you need to fill out the mortgage application to get the mortgage, you do not need to pay the application fee to get one.
2. Assumption Fee: If you are taking over an existing mortgage, the lender will probably charge a fee for handling the paperwork. Find out what different lenders are charging and compare their fees. Know how much is too much.
3. Commission: Know who is paying the agent's commission fee: is it the buyer or the seller? Unless you have a written agreement to pay part of the seller's agent's fee or your buyer's fee, the commission should not appear on the buyer's estimate of cost sheet.
4. Appraisal Fee: A lender wants to know that the property on which a loan will be made is worth more than the loan. Your lending institution may request an appraisal of the property, which would be your responsibility to pay for. Appraisals can vary in price from approximately $175-$300. However, if you have are refinancing a loan which you applied for last year, the lender should not need to have the home appraised again.
5. Closing Review Fee: Sometimes the lender will charge you for going over the closing documents. The Closing Review Fee is unnecessary.
6. Courier Fee: Be wary of unnecessary delivery fees. Some companies will charge you for courier fees even when they haven't used a courier.
7. Credit Report Fee: The Credit Report Fee is required, but be wary of charges that are above $100. Again, find out what the normal and customary fees are for credit reports.
8. Discount Points: Points are used to adjust the yield of the mortgage to correspond to market conditions. Make sure that you aren't paying for more points than you agreed to when you first signed up for the loan. If there are discrepancies between what you thought and what the lender has put into writing, discuss them with your lender before signing the agreement.
9. Document drawing/signing Fee: Sometimes the escrow company will charge a fee for writing out the documents and having you sign them. Question your escrow company if you come across it.
10. Document Preparation Fee: Some lenders will try to charge you a fee for writing out the loan documents Also commonly referred to as the Processing Fee. This is part of their job and the fee is one of those "garbage" fees that you should just throw out.
11. Escrow Charges: The escrow company accepts all the monies, gets the deed prepared, and handles the actual closing of the transaction. An escrow fee is required but again, compare what different escrow companies are charging to get the best rate. Check to see if the title company and the escrow company are affiliated. They may have discounts available if you use both of their services.
12. Hazard Insurance: You will be required to provide fire and hazard insurance policies to protect the lender. Be sure to shop around for the best rates.
13. Impounds: If your mortgage was for more than 80% loan-to-value ratio, you will probably be required to impound taxes and insurance. The lender will collect a couple of months of taxes and insurance from you in advance in order to get the account started, and then pay them when due. Make sure that the right amount and not more is set aside.
14. Impound setup: Challenge any setup costs. Setting up the impound is part of the lender's job.
15. Lender's attorney fee: You are not required to pay the lender's attorney fee. It should be included in the lender's services.
16. Lender's title insurance: Most lenders require a separate policy of title insurance. Compare the different rates to find the best one.
17. Mortgage Insurance Premium: If you have an FHA loan or a loan for more than 80% LTV, you'll have to pay for insurance in case you default on the mortgage. If this charge does not apply to you, question your lender.
18. Origination Fee: This is like a start up cost. Many lenders will add this fee and not waiver it. However, you can find lenders who do not add this fee on top of their interest.
19. Underwriting Review Fee: Lenders usually hire underwriters to double check a buyer's employment and income to make sure that everything is in order. The lender should pick up any fee that the underwriter charges. Usually the underwriter fee varies from $200-$400. If you can avoid this fee, do so.
20. Warehousing Fee: Lenders sometimes charge for the interest on the mortgage between the time the lender makes it available to you and the time the deal actually closes. There's no need for you to pay interest on it until you receive the mortgage.
21. Administrative or Transaction Fee: Some real estate agents will charge a separate fee for writing and managing your documents. This is another example of an extra charge for a job that is routine for an agent.
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