COMMON HOME BUYING MISTAKES

Common mistake: Not taking the total cost of owning a home into account.

What are the factors which contribute to the true total cost of home ownership? Why is it important to consider these costs?

• Appraisal: Paid by the borrower shortly after your intent to proceed with a lender and is paid directly to the appraisal management company. Costs range from $450-600 typically.
• Home Inspection: Optional. Your realtor and you would discuss this, but speaking with a mortgage broker to decide if you should have a home inspection is a great idea too! This fee would be paid after the sales agreement is signed as often the sales agreement is contingent on a satisfactory home inspection. Costs range from $200-400.
• Other Inspections: Elected optional inspections that you discuss with your realtor, such as water, radon, pest. Sometimes these inspections can be mandatory depending on the loan type. If mandatory, often these fees can be paid at closing instead of prior to closing. Fees for different inspections will vary.
• Credit Report: To complete an application for a mortgage, your credit report must be issued to the mortgage broker. This fee is around $25 per applicant.
• Other: It is possible to have other prior-to-closing fees depending on the type of home you wish to purchase. If you’re looking at a double-wide manufactured home and applying for an FHA loan, you will need to have an engineer inspect the foundation. It’s best to speak with your mortgage broker to determine what will be needed in your scenario.
• Flood Insurance: If the subject property is in a flood zone, flood insurance will be required by the lender. Flood insurance must be paid in full by the borrower prior to closing. Cost associated will range widely depending on the size of the type and amount of coverage, property location, flood zone, and the age of the structure. The average cost of flood insurance is $700-1500 per year, but speaking with an insurance agent is the only way to truly determine the cost for a property.

• Title insurance (Lender’s policy): Title insurance protects the buyer and the lender against any future ownership claims in relationship to the property, as well as unknown liens against the property, fraud, forgery, or encroachments. The lender’s policy is paid by the borrower as the lender requires their lien against the property be in first position.
• Title insurance (Owner’s policy): The lender’s policy does not cover the owner, thus it is a good idea to have an owner’s policy for title insurance. Costs range from a few dollars to hundreds, and are based upon the different in the purchase price of the home, and the loan amount.
• Homeowners insurance/Hazard insurance: As long as a mortgage exists on your home, the lender will require you to keep homeowner’s insurance on the home to protect against damages such as fire or natural disaster. Cost of homeowners insurance vary depending on the price of the home, the amount of coverage, and several other factors. Generally at closing, the first year’s premium is paid in full, with another 3 months paid into escrow if there is an escrow account.
• Up-front mortgage insurance premium or Funding fee: This premium is paid at closing on government backed loans (FHA/VA/USDA) to help entities such as the Federal Housing Administration (FHA) insure loans for borrowers. The cost of this fee can range from 0% (in special cases) to 3.3% of the purchase price.
• Origination charge/Mortgage points: A charge from the lender for processing the paperwork associated with a new loan. Typically this fee is 0.5 to 1% of the purchase price.
• Broker fee: When you’re using a mortgage broker, the broker does not receive compensation until you close on your loan. These fees can vary depending on the market but are required to be 3% or less of the loan amount.
• Title fees: Fees associated with the title insurance related to the closing that include items that the title company may have incurred expense for in relation to the search and also required expenses associated with the title insurance policy.
• Transfer tax: While this differs from state to state, in Pennsylvania the state realty transfer tax is 1% of the purchase price, typically split between the buyer and seller. There is also a local realty transfer tax whose rate is typically 1%, again typically split between the buyer and the seller. This money is split between the PA Department of Revenue and local municipalities.
• Escrow account: This account is managed by the bank. As the lender does not want to risk you not paying your property taxes, an escrow account is created to pay both taxes and insurance. Each month, part of your mortgage payment is a payment into the escrow account, and at closing is when the escrow account is started. The amount need at closing varies as it is based on the costs of your homeowners insurance and local property and school taxes.
• Odd days interest: It is the only upfront payment of interest in a mortgage and mainly designed so that there is not a partial payment made and the amortization schedule is properly scheduled.
• Flood cert fee: Charge for the certification as to whether or not the property is in a flood zone.
• Tax cert fee: Charged by some lenders to verify the accurate real estate taxes on a property,
• Any inspections not paid up front: If any inspections on the home are still due at the time of closing, they would be included at settlement as a cost.
• Proration of real estate taxes: Payment to the seller back for any time that you are going to occupy the property where the seller has already paid the taxes for that time period.
• Recording fee for mortgage and deed: Paid to the county courthouse. Fee depends on the county and the number of pages recorded.

To learn more about getting a home mortgage in State College – or anywhere else in Pennsylvania – contact Principle Home Mortgage today!