You found a home priced at $150,000. It is only rarely that you would be able to spend just the tag price of the home to become a homeowner. In most cases, you end up paying much more than that. While a significant portion is paid well before you can get the key of your new home, the rest is paid in small amounts every month throughout the life of the loan.
The Cost of Homeownership
You must have enough savings to pay for certain upfront charges for a conventional mortgage loan.
Down Payment
The biggest is the down payment, which you must make in a lump sum at the closing. It is a portion of the purchase price that is paid in cash and is not part of the mortgage loan. Depending on the loan type, the amount you need to pay down at closing may vary from 0% to 20%.
Interest
Interest is the most important cost of borrowing money. Though you pay only a small portion each month, the total interest cost during the term of the loan may well past double the home purchase price for a 30 year loan. An important aspect of mortgage shopping is to compare the interest rates offered by different lenders.
What should you pay attention for when shopping for a mortgage loan?
APR
The true cost of a mortgage loan is represented more by annual percentage rate (APR) than interest rate. This is because it includes interest as well as other charges that you need to pay at the closing. These charges are grouped under closing cost or settlement cost.
The APR is always higher than the interest rate. A lender must give a Truth-in-Lending-Disclosure Statement after you apply, which contains the annual percentage rate and other details of the amount being financed.
What is a Truth-in-Lending-Disclosure Statement?
Closing Cost
The different fees and charges you need to pay at the closing can range between 3 to 6 percent of the loan amount. So, it can be anything between $4,500 and $9,000 for a loan amount of $150,000. It is a significant amount and you can’t overlook it, especially when you are counting dollars to meet the cost of the home loan.
The GFE can give you an estimation of what your closing costs will be.
Not all fees and charges are payable at closing. There may be some that need to be paid just when the job is done. These charges, along with the closing cost, can broadly be grouped under upfront charges. Some examples include home inspector’s fee, mortgage application fee, and an earnest money deposit. Depending upon the recipients, the upfront charges may be divided into three groups – lender fees, state and local government fees, and the third-party fees.
How to Get an Estimate of your Mortgage Loan Cost?
Take some time to understand the different fees, charges and other costs associated with homeownership.
What are important closing costs and other fees?
Take an Example
To get an estimate of your loan cost, let’s assume that the home is priced at $150,000 and you are able to pay down 20% of the home price. The amount you need to borrow will be $120,000 and you won’t have to pay for mortgage insurance also. Here is a breakdown of the cost (in U.S. dollars) you might have to pay for obtaining a mortgage loan.
| Appraisal | 300 |
| Credit report | 25 |
| Closing fee | 175 |
| Title company title search or exam fee | 175 |
| Survey fee | 175 |
| Flood determination/life of loan coverage | 50 |
| Courier fee | 30 |
| Title insurance (lender’s policy) | 350 |
| Title insurance (owner’s policy) | 350 |
| Homeowners insurance | 500 |
| Buyer’s attorney fee | 500 |
| Lender’s attorney fee | 300 |
| Loan origination fee | 1500 |
| Escrow deposit | 417 |
| Pest inspection | 100 |
| Recording fee | 25 |
| Underwriting fee | 250 |
| Home inspection cost | 250 |
| Application fee | 100 |
| Mortgage insurance | 0 |
| Points | 0 |
| Tax Service | 150 |
| Total | 5722 |
Disclaimer: The above calculation is a wild guess only and doesn’t represent the actual mortgage loan cost, which may vary from one lender to another and from one state to another.
You lender is required by law to give you an estimate of the closing cost (known as good faith estimate) within three days of application. The actual cost, which may vary by 10% of the GFE, is outlined in HUD-1 settlement statement, which you must receive from your lender at least a day before the closing.
What to do if you find the itemized cost of your loan higher in HUD-1 than the estimates of the GFE?