Hidden Costs of Getting a Mortgage

Written By Jeff Hindenach
Last updated February 14, 2020

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Money Saving Tips
September 15, 2016

Simple. Thrifty. Living.

You put an offer on a home. The offer is accepted. Then, all of sudden, you get hit with thousands of dollars of fees and expenses that you weren’t expecting when searching for a mortgage. Many homeowners go through this panic. They know about “closing costs,” but they generally seemed blind sided with how much those closing costs end up being, especially if you are spending a lot of money on a house. Here’s a breakdown of what goes into those “closing costs” and a few tips on how you might be able to save:

Inspections: This one may not be hidden, but some home buyers may not expect to pay so much to get a potential home inspected. Home inspections can cost several hundred dollars, especially if you have multiple inspectors come out (one for pests, one for foundation, one for general home inspection, etc.)

Escrow Taxes: If your downpayment for the house is less than 20%, you will need to open an escrow account. This is used to pay the homeowner’s nonmortgage-related property ownership expenses, like HOA fees or homeowners insurance.

Escrow Fees: Escrow can be an expensive process. You need to pay for the processing of all the paperwork that is involved in opening an escrow account.

Mortgage Insurance: This protects the lender if you default on your mortgage. You only have to pay mortgage insurance if your downpayment is less than 20% of the purchase price.

Property Taxes: Depending on when you buy your home, the original owners may have already paid property taxes for the year. If they have, you will have to pay them back for the property taxes for when you take ownership of the house.

Deed Transfer: The title company is going to charge you to transfer the deed (or title) from the previous owner to you. Costs vary, but it can run you in the hundreds of dollars for the average home.

Title Insurance: Title insurance helps protect you if there is a problem with the title, for instance, if the people selling the property don’t actually own it.

Points or loan origination fees: You can pay ahead on the interest of your loan to lower your overall interest rate. You can pay nothing, which will raise your interest rate and cost you more in the long run, or you can pay up to 3% on the overall loan, which will lower your overall interest rate.

Government recording charges: This is paid to the local government for recording the new land records.

Appraisal fee: The house will need to be appraised to make sure it is worth what you are paying for it, otherwise the bank may not approve your mortgage.

Credit report fee: The lenders will need to run your credit report, which costs money. Not a lot, but it’s an extra expense.

Notary: A notary needs to be present for all the paperwork that is involved in buying a home, and having them there will be an extra expense.

Insurance: You will need to buy homeowners insurance to cover the home. In addition, there are things that home insurance doesn’t cover, so you can also look into spending some money on a home warranty company like HomeServe USA to help with those costs.

And this isn’t even everything. There are a ton of extra fees and expenses that come with closing on a house. Be sure that you factor these closing costs into your budget, otherwise you might be scrambling to come up with the money for all these extras. If you are able, try to negotiate the closing costs so that the seller has to absorb the cost. Many sellers could baulk at this, but if you offer a good price with few contingencies, it might help alleviate some of the initial financial strain of buying the house.

Want to know if you qualify for a mortgage? Here is a good tool to help you.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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