Beyond the Mortgage
Beyond the Mortgage – Additional Cost Considerations for Home Shoppers
When assessing how much house they can afford, potential home shoppers concentrate on the down payment and the mortgage rate. While those are two important elements in home buying, there are other costs that can trip up home buyers if not taken into consideration. Hawaii has the dubious distinction of the highest closing and third-party fees in the nation.
Homebuyers will pay between 3 and 5 percent of a home’s value in closing costs. For a $500,000 home, that’s between $15,000 and $25,000. Such costs also vary by the lender. These costs include:
• Broker’s commission
• Loan origination fee – also known as points, this fee is based on the amount of the loan. Each point amounts to 1 percent of the loan. Document preparation, funding and underwriting all fall under the guise of “loan origination.”
• Title insurance -Title insurance protects the buyer and the lender and is an absolute necessity for homebuyers with a mortgage. A title company ensures a legitimate title to a particular piece of property. The insurance protects buyer and lender from any possible litigation against title – or ownership – of the property. In Hawaii, expect to pay around $1,000 for title insurance, split between seller and buyer.
• Escrow fees – split 60-40 percent between seller and buyer.
• Property taxes – if the seller has prepaid property taxes at the time of closing, the buyer must reimburse the seller for the amount. If the seller owes taxes on the time they owned the house, they must pay them at the closing.
Third Party Fees
During the home buying process, all sorts of third-party fees arise. Some of them you may expect, while others may catch you unawares. Your lender may not have knowledge of some of these third party fees. Here’s a basic list for those who don’t like surprises:
• Appraisal fees – expect appraisal fees to range from $600 to $800, depending on the size and condition of the house.
• Survey – the survey fee is generally in the neighborhood of $800.
• Pest inspection – $125
• Legal fees – without extenuating circumstances causing attorney fees to rise, expect to pay about $650 for a standard closing.
• Flood report – $10
• Credit report – a flat fee of about $20
• Courier services – approximately $50.
Beware of “No Closing Costs” Loans
There is really no such thing as a “no closing costs” loan. A buyer won’t pay these fees individually, but they are still tucked into the mortgage.
If you put less than 20 percent down on a home, your lender will require you to carry mortgage insurance. Once you reach 20 percent equity in the dwelling, you can ask your lender to cancel the mortgage insurance.