New Home Finance Guide: Fees Before Ownership

If you are a first-time home buyer, it's a good idea to become familiar with the fees involved, before you actually "own" your new home. In order to get a handle on the lengthy list of (possible) fees you can expect to pay, let's break them down in categories. Keep in mind, there's no way to give an exact figure of costs because the fees will vary.

Not all the fees will be relevant, according to where you live, so you may not be charged for every item within the list. What you can count on is paying around 2% to 3% of your total loan (closings can go as high as 6%).
Mortgage Related Charges

The following items are mortgage related charges:

1. Loan Origination Fee - Covers processing your mortgage. Percentage of your loan or a flat fee. The loan origination fee.
2. Loan Points - One time charge which adjusts the yield of the loan. One point is 1% of the loan. The buyer will usually pays for the points but sometimes the seller will.
3. Credit Report Fee - Sometimes paid when you fill out the loan application for pre-approval and not paid at closing. Either way, it is a non-refundable charge.
4. Appraisal Fee - Lenders require you to have the property you want to purchase appraised. This usually paid by the buyer. This fee is sometimes included in the mortgage insurance application fee.
5. Mortgage Insurance Application Fee - Covers the costs for applying for private mortgage insurance (PMI), which is usually required with less than 20% of a down payment. This fee is sometimes paid before the closing.
6. Assumption Fee - Those assuming a loan pay this fee. A lender's charge for updating records when a buyer takes responsibility for a mortgage from the seller.

Title Insurance Charges

Title insurance tends to be one of the biggest, yet least understood costs. It's insurance against any devaluation or obstacle to clear-and-free title, due to misinformation provided by the title company. Title services ensure that you truly do become the owner of the property you are buying and have written proof of ownership.

There are several fees involved with getting title such as:

1. Title Search, Examination and Insurance Binder (commitment to insure) - Charges made for title search and guarantee services.
2. Title Insurance - Policy that protects you against any defects in the title that may be discovered after transfer of ownership has been conveyed. Local convention and the type of seller will dictate whether the buyer or seller pays for the insurance.

As you can see, there is a bevy of fees involved in the process of buying a new home. Stay tuned for my next post, when we discuss the fees involved within the categories of Escrow (reserve funds) and Other Settlement Charges.