What Are the Costs of Getting a Mortgage?
There are costs associated with each home mortgage loan, and buying a house requires having cash on hand to meet these expenses. Fortunately, there are ways to lower certain mortgage-related expenses, and it's possible to avoid some costs. Learn about the different costs to acquiring a home loan and consider solutions to reducing your out-of-pocket expense.
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Application and Credit Report Fee
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Before you're even approved for a home loan, mortgage lenders will require an upfront fee to check your personal credit history and review your home loan application. Not everyone who applies for a mortgage gets approved, and lenders take into account credit history and employment history when approving applications. Applicants with scores of 680 or higher and those who've been employed for at least two consecutive years generally qualify for home loans. The fee for the application and credit report vary according to provider.
Appraisal and Inspection
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Another costly aspect of buying a home involves paying for an appraisal and home inspection. Appraisals are necessary to determine the property's value, and lenders require an appraisal because they will not finance a property if the asking price is more than the property's value. Appraisal fees depend on the size of the property and run between $300 and $500. Property inspections are optional, but recommended. This includes hiring a home inspector to check the property's structure, electrical system, plumbing, heating/air, roof and other areas to assess the condition. Fee for inspections range between $300 and $500.
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Down Payments
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Zero down mortgage loans are rare, unless applying for a VA home loan. With this said, mortgage lenders do necessitate a down payment on properties. Down payments can be as low as 5 percent of the sale price, and as high as 20 percent of the sale price. Larger down payments are beneficial because they provide you with quick equity and eliminate private mortgage insurance (PMI). Mortgage loans without 20 percent equity include monthly PMI premiums rolled into the mortgage payment. Premiums are roughly one-half of 1 percent of the mortgage, says LendingTree.com.
Closing Costs
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Another expensive cost of buying a home is closing or settlement fees. These fees pay for any lender and third-party services required to process your home loan, minus upfront fees such as the application and credit report fee. According to Lendingtree.com, closing costs are about 3 to 6 percent of the loan balance, and this fee includes the loan origination fee, attorney fees, title search fees and mortgage points paid to reduce the interest rate on the loan.
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