Real Estate Insights

The Most Common Hidden Mortgage Costs And How To Avoid Them

2 years 9 months ago I 0 minutes read I 84 Views

Gary Stringer

Purchasing a house is the best investment you will ever make. You are excited that you have just found the perfect home! The neighborhood is wonderful, the house is lovely and the price is right. 
 
The asking price, however, is just the start. It is important to be realistic about the additional expenditures, that are sometimes unforeseen. 
 
Don’t stress out homebuyers, they can be easy to avoid if you know what to look for! <a href="https://yourdealty.com/">We</a> have listed a few hidden costs that we think every homebuyer should be aware of.
 
<h2 style="text-align: justify;">Origination Points:</h2>
The lender charges a fee for reviewing processing and approval of the loan which is called the Origination points. One point is equal to 1 % of the total mortgage. So, if the total mortgage is $100,000, one point would cost $1000 to the borrower. These points basically trim the interest rate on the loan. Borrowers can also buy fractions of the point.
 
A fair range is one to four points. Be prepared to expect your loan to cost you roughly $3600 to $14, 400, plus interest in addition to the price of the house. To avoid this cost, it’s important that get a rate from three different lenders. This will help you compare the rates and get the best deal. You can easily find lenders who can offer fewer points. You can also negotiate with the lender to reduce the points. You can ask them to include certain closing costs in the origination fee which is a major cost-saving.
 
You can’t completely avoid the origination point fee but you can do one thing to mitigate their impact. Make sure not to add the points in your loan payments and pay them in advance because even a single point can make up to $2500 in interest. 
 
<h2 style="line-height: 115%; text-align: justify;">Property tax:</h2>
 
There is a certain amount of money that is charged by the government agencies to own a property. Property tax is determined by the city or country in which the house is located. For example, in the state of Arizona, the average effective tax rate is 0.72 percent. So, in most situations, property tax is added to the monthly mortgage payment. This raises the monthly mortgage payment way beyond the purchase price.
 
Your home value determines the rate of the tax. If there’s anything that you can do to reduce the tax is to stop the local government from raising your home accessed value, this will keep your tax rate lower. Secondly, your property taxes are usually lumped in your mortgage payments, making your monthly mortgage payment higher. You can make an upfront payment for the taxes, this will slash your monthly payment and give you more control of the cash.
 
<h2 style="line-height: 115%; text-align: justify;">Home owner’s insurance:</h2>
 
Here’s a scenario, what if you are a homeowner and your house burn’s down, it would solely be your loss. But what if you have it on the mortgage, it would be your lender’s loss. This insurance is just for the security of the lenders. That is why lenders or mortgage companies require you to carry a Homeowner’s insurance. Just like the property taxes, Home insurance payments are also rolled up in your monthly mortgage payments. 
 
The average annual home insurance premium varies from state to state. In Arizona, it's about $825 annually. This rate depends upon the mortgage companies, so I would suggest to homeowners that if they are getting homeowners policy they should shop around and get the best rate possible. If the homeowner’s policy lapses. The lender will turn to you to make the full loan payment. This also gives the lender the legal right to purchase insurance for you, and he will get it at a punitively high rate which will automatically increase the mortgage payment costs.
 
Maintaining a good credit score, raising your deductibles will cut down the insurance cost but the best way to avoid this payment is you can convince your lender that you don’t need home insurance. You can make your home more disaster-resistant and increase security. Legally, you can <a href="https://yourdealty.com/buy">buy a home</a> without a home insurance policy. If the lender agrees to continue with the contract without the home insurance, you wouldn’t have to pay the home insurance cost at all.
 
<h2 style="line-height: 115%; text-align: justify;">Funding the Escrow Account:</h2>
 
Some lenders request that, in accordance with the mortgage loan agreement, an <a href="https://www.escrow.com/what-is-an-escrow-account#:~:text=An%20escrow%20account%20is%20an,have%20fulfilled%20the%20escrow%20agreement.">escrow account</a> to be set up. You are expected to make an initial deposit in your escrow account at the closing table. This money is used by the lender to pay property-related expenses such as property tax, home insurance premiums, etc. on the behalf of the homeowner.
 
So, the homeowner is expected to pay a little extra in addition to the mortgage payment to the lender, increasing your monthly mortgage. You can request the lender to waive off the Escrow account requirement. You can provide evidence to the lender that you have made timely payments for your taxes and insurance, this will gain the trust of your lender and he cancels the escrow account.
 
<h2 style="line-height: 115%; text-align: justify;">Bunch of closing costs:</h2>
 
Beyond the main fee, there are extra charges that add up to hundreds and thousands of dollars.
<ul>
<li>Application fees</li>
<li>Assumption fees</li>
<li>Appraisal fees</li>
<li>Attorney’s fees</li>
<li>Broker’s fees</li>
<li>Prepaid interest</li>
<li>Title cost</li>
<li>Mortgage broker fees</li>
<li>Cost of inspection</li>
<li>Lawyer fees</li>
<li>Recording costs</li>
<li>Document fees</li>
<li>Surveyance fee</li>
<li>Title cost</li>
<li>Home warranty</li>
</ul>
 
To avoid these, you need to have a complete list of all the charges your lender is demanding. Understand each fee and negotiate with them. This will help you save a few thousand dollars.
 
Dear <a href="https://yourdealty.com/buy/sign-up">homebuyers</a>, you might not be able to remove all the hidden expenditures but that doesn’t mean you shouldn’t even try. This mortgage game is supposing to be profitable for the lenders. But you should be prepared. Even a slight reduction would save you thousands of dollars over the life of your loan.

Gary Stringer

Contributer

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The Most Common Hidden Mortgage Costs And How To Avoid Them

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