The Hidden Costs of a Mortgage: What No One Tells You!

The Hidden Costs of a Mortgage: What No One Tells You!

Loan Fees and Closing Costs – what’s the difference?

Understanding the Hidden Costs When Buying a Home

When you’re buying a home, everyone talks about the excitement of owning property, but no one really dives into the costs and fees that come with it. These expenses can be a bit of a shock if you’re not prepared, so let’s break it down.

What’s the Difference Between Fees and Costs?

There are two main categories of expenses when you get a mortgage: “closing costs” and “loan fees”. They’re different, but both are part of every mortgage transaction. The confusion usually happens when buyers are quoted loan fees, but then they see their closing statement and realize they need more money than expected. Let me explain why.

Common Loan Fees:

When you apply for a loan, whether for a purchase or a refinance, some fees are pretty straightforward and can be quoted early in the process. These include:

– Lender Fees: Cover things like underwriting, processing, tax service, and flood certification.
– Title & Escrow Fees: Include the title report, escrow services, document recording fees, and a few miscellaneous charges.
– Appraisal Fee: The cost of having your home professionally appraised.

Additional Costs You’ll Encounter

 

Now, beyond these fees, there are other “costs” to be aware of. These aren’t exactly “fees,” but they’re expenses you’ll need to cover when applying for a mortgage, whether it’s a purchase or refinance.

1. Homeowners Insurance: When buying a home, you’ll need to pay for one full year of insurance upfront, even if your insurance company offers monthly billing after that.

2. Property Taxes: This one depends on when your loan closes. In California, for example, property taxes are due on November 1 and February 1. So, if you close on December 1, you’ll likely have to reimburse the seller for the portion of taxes they already paid for the month of December. That’s an extra cost to you.

3. Interest Due: Depending on your closing date, you’ll owe interest for a certain number of days. If you close on October 20, you’ll owe interest from October 20 to October 31. The good news? Your first mortgage payment won’t be due until December 1, so no payment in November!

4. Funding Your Impound Account: If you choose to have your mortgage payment include taxes and insurance, you’ll need to set up an impound account. This means you’ll have to pay an upfront amount to “fund” that account, which can be substantial depending on the time of year. If that’s too much to handle at once, you can opt-out and set it up later by calling your loan servicer.

Bottom Line
Whether you’re buying a home or refinancing one you already own, you’ll have both fees and costs to cover. Make sure you understand what’s involved and get an estimate of the total amount so you’re not caught off guard at closing.