The 5 Most Common Fees Associated with Mortgage Loans
Whether this is your first time or your third, fees associated with mortgage loans can come as an unpleasant surprise. Costs like mortgage insurance and property taxes frequently catch buyers off-guard. Understanding these and other fees and budgeting for them will ensure a smooth financial transition to buying your home.
Jordan Mueller, one of our Waldo State Bank mortgage lenders, says, "There are too many loan options for homebuyers not to have someone go through the differences with you." So, our mortgage experts compiled the top five most common costs associated with mortgage loans to help with your decision.
Home Inspection Fees
A home inspection is completed to see if any significant issues need to be addressed before closing.1 The inspection is the last chance for a buyer to identify any significant problems that could be covered by the seller and negotiate the overall price of the home if it is necessary.2 The American Society of Home Inspectors explains that home inspectors are expected to investigate the a variety of aspects and provide a home inspection report. Home inspectors check out the home's heating and cooling systems, plumbing, electrical system, roof, attic, walls, ceilings, floors, doors, the foundation, the basement, and other structural components.
There are also one-time fees associated with home inspections. Typically cost varies on the provider, urgency of the inspection, location of services, and the square footage of the home inspected.3
Home Appraisal Fees
A home appraisal estimates your home is worth in the current market landscape. It evaluates the home's condition, age, location, and specific features included in the home.4 The appraisal outcome helps banks and lenders determine the amount to loan out to the borrower. Appraisals usually occur after the home inspection and before closing to reassure lenders that the property's price aligns with its true value. Like a home inspection, an appraisal report should be provided.5
Home appraisal fees depend on the appraiser, the location of the home, and the complexity of the property.6 These are one-time fees associated with the overall closing cost of the loan. However, the buyer could negotiate appraisal fees for the seller to pay instead.7
Ongoing fees associated with a mortgage loan include interest. Interest is the cost of borrowing a loan accrued per month. Interest is ultimately determined by various factors, including the down payment of the loan, current market, the type of loan, and your credit score.8
Ted Katsma, one of our mortgage lenders at Waldo State Bank, has an important tip about your credit score. He says, "On-time credit payments are one factor that affects your credit score. It increases your chances of getting a good mortgage rate. You can also review your credit score using free credit report tools like Annual Credit Report. This helps you verify and identify any discrepancies or surprises that might show up when a bank runs your report."
In one of our previous blogs, we explain three types of real estate loans with different ways interest is applied to each of the loans.9 They are fixed-rate mortgages, adjustable-rate mortgages, and balloon repayment mortgages. Like the name, fixed-rate mortgages have a set interest rate throughout the life of the loan regardless of the current market. Adjustable-rate mortgages (ARM) interest rates fluctuate throughout the life of the loan.10 Balloon mortgages are considered high-risk loans and typically have higher interest rates.11
Another fee associated with mortgage loans is property taxes. Property tax is the amount paid depending on the "value" of the entire property determined by the local government.12 These taxes help pay for improvements for local services that benefit the community like fire and law enforcement, education, and road construction.13
Property tax information is usually found on house listings and is easily accessible through the listing agent. They also vary by location and the taxing district the property is located. In Wisconsin, the average cost of property taxes is one of the highest in the United States.14 In Sheboygan County, property taxes on average price $3,263 per year.15
Private Mortgage Insurance
Private mortgage insurance, or PMI, is listed as insurance for the lender. Typically PMI is paid monthly, and the actual rate is determined by several factors, including the amount of the down payment, your credit score, and the overall loan amount.16 PMI is usually required when you have a down payment of less than 20 percent of the home's purchase price. Ultimately PMI protects the lender if you cannot pay back the loan.17
It is possible to cancel PMI before your lender automatically or finally terminates this fee. However, for these cancellations to happen, you will need to meet specific criteria.18
These fees are not all-inclusive to having a mortgage loan. Work on improving your credit and follow this tip from Tom Reil, President at Waldo State Bank. He says, "Start saving for a down payment. There are more options available the more money you have down. The money being saved in your budget can now be used to make a mortgage payment". Position yourself to get better rates and lower fees associated with your mortgage loan.
For any additional questions about mortgage loans, contact our team at Waldo State Bank.