Mortgage interest rates recently hit all-time lows, falling below 4% for 30-year fixed-rate loans and to around 3.25% for 15-year loans.
If low rates alone haven’t enticed you to purchase a home or refinance an existing mortgage, you might be tempted by the thought of doing a “no cost†mortgage.
But beware: Even if a bank says you’re getting a “no cost†mortgage—perhaps because they are not charging points on the loan—that doesn’t mean the loan itself is truly “free†or is really being offered at zero cost to you.
Banks aren’t in the business of loaning money, and doing all the work required to close a mortgage loan, free of charge. So the truth is that you will be paying in one way or another for the bank’s services, in addition to paying interest on your mortgage.
In general, when you obtain a mortgage, you will actually pay four sets of fees: Lender Fees, Title and Third Party Fees, Escrow and Interest Fees, and Government Fees.
Each set of fees will be outlined in your Good Faith Estimate.
Here are examples of the common fees you might see when you obtain a mortgage — along with estimated costs. These costs can apply to both initial home purchases and refinanced home loans.
Obviously, prices for different products and services can vary based on where you live and other factors. Nevertheless, the numbers presented below will give you an estimate—or in some cases a range—of what you can typically expect to pay for your mortgage.
Typical Closing Costs on a New Mortgage:
Description of Fee Cost
Application Fee                        $150-$400
Appraisal                                   $200-$400
Closing Fee                                 $250-$350
Credit Report                            $15-$50
Document Prep Fee                $150-$300
Flood Certification                  $10-30
Legal Fees                                   $250-$750
Loan Origination Fee              Usually 1% of the loan
Points                                           Each point is 1% of the loan
Recording Fee                         $25-$50
Survey                                        $150-$300
Taxes                                           Varies (See more info below)
Termite Inspection                $50-$100
Title Insurance                        Varies (See more info below)
Some loan costs, like interest on your loan and property taxes, must be put in escrow, meaning that you pay for them for a few months, up to a year in advance. The same is true for homeowners’ insurance, which covers the house in case of a fire or another disaster.
Insurance Costs for Your Home Loan
When you get a mortgage, lenders also require you to pay the upfront cost of buying title insurance. Title insurance protects your lender if any problems arise with the title (or ownership) of your property, due to a tax lien, judgment or some kind of encumbrance on the title.
Title insurance costs vary greatly nationwide, partly because the title insurance premium you pay
often covers different services, depending on the company you use and where your home is located. For example, in some places your premium simply covers the lender for any title-related losses. In other places, though, the premium covers losses, as well as the cost of a title search, title examination, and closing services. Title insurance also varies based on the size of the mortgage.Watch Out for “Junk†Fees Charged By Some Lenders
If a lender touts its loans as having “no points†or origination fees, they’re typically making up for it by offering you a higher-rate loan. Also, even with a “no point†loan, don’t be fooled into thinking you won’t be hit with other miscellaneous charges.
Junk fees are those charges imposed solely to add to a lender’s profit margins. In many cases, these fees have legitimate or official sounding names, like “document preparation fee.†In truth, however, they’re really just creative ways for lenders to pad their bottom line at your expense.
Many lender charges that have the word “fee†attached them are a dead giveaway that you’re being charged for services that lenders are supposed to provide anyway in the normal course of business.
If you get charged for an “underwriting fee,†a “loan review fee,†a “warehousing fee,†or other such nonsense, do not hesitate to ask the lender to waive those fees — or at least substantially reduce them. Even things like the “application fee†or the “loan processing fee†can be eliminated or cut, if you are savvy enough to ask.
“Ask The Money Coach†is a syndicated column written by personal finance expert Lynnette Khalfani-Cox, co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.