Mortgage Costs to Watch Out For

Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal.

Here are some fees you need to watch out for:

Application Fees

Just because an ad says “no application fee” doesn’t really mean there’s no fee to get the loan. Fees paid outside of closing typically include an application fee, an upfront property appraisal fee, and a credit check. They might be disguised as something like a “document processing fee” or “doc fee.”

Risk Adjust Rates

Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously and you can expect a higher interest rate.

Down Payment Penalties

The days of zero down on a mortgage are long gone. Without a down payment of at least 20%, prospective homebuyers will undoubtedly be hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.)

Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.

Closing Costs

Closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer.

Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees.

If you need a place to start looking for a dependable mortgage expert, contact us. We work with many lenders and can give you a few names and numbers to get you started looking for the best home mortgage.