Mortgage Rates and Fees FAQs
Get the answers to frequently asked questions about mortgage fees and mortgage rates
As you prepare to start the mortgage process, you may be wondering what mortgage fees you'll be responsible for paying and what mortgage rates you can qualify for. You're not alone. Buying a home and obtaining a mortgage for the first time can seem complicated. You may be wondering if you should get a fixed or adjustable rate loan, or how much paper work you need to fill out. However, when you're prepared with all the facts, the details can feel less overwhelming.
What mortgage fees will I encounter during the home buying process?
As you prepare to buy a home, there are several fees you need to be aware of. Often times dwarfed by the price tag of a home, mortgage fees are important to account for when saving for a home. Listed below are some of the fees you may incur, and why they are charged. You should discuss mortgage fees with your lender to determine which may apply to your situation. Once you apply for a loan, the lender is required to provide you with a customized list of fees called a "good faith estimate" to help you to clearly understand what you will be paying up front and at loan closing.
- Points: Mortgage points are a one-time option you can purchase to lower the interest rate on the loan. One point is equal to one percent of your loan amount. If you can afford to pay mortgage points up front, and plan to be in the home for an extended amount of time, it may make sense to purchase points and reduce your payments down the road. Use our mortgage points calculator to help decide if they're the right choice for you.
- Prepaid costs and closing costs: These costs are based on a variety of factors such as the type of mortgage you're taking out and where your property is located. Examples include the following fees:
- Credit report fee: Your lender will order a credit report showing your credit history along with your current obligations. Before you apply for a mortgage loan, you should obtain and review a copy of your annual credit report for accuracy, and work with the credit agencies or other creditors to correct any errors.
- Appraisal fees: A home appraisal is often required by your mortgage lender to independently determine the value of the home. Prepayment for this is expected when you submit your loan application. The lender will then arrange for the appraisal and provide you with a copy no later than three days before you close your loan. If you end up with a low appraisal, this may decrease the loan amount that can be approved. However, if the appraised value is significantly lower than the asking price, it may be an advantage, providing grounds for you to go back and renegotiate.
- Settlement Costs: Real estate transactions generally require an attorney's or closing agent's assistance. Settlement costs cover fees for the attorney or closing agent as well as examination and insurance of the title. When you are buying property, it is important that the deed you get from the seller is valid and clear of prior liens or ownership. A title search, usually done by the attorney or closing agent, will examine the title to certify you will be able to access and use your property as you expect. You may also have to pay title insurance to protect yourself and the lender from anything unexpected that comes up afterwards that may not have been known at the time of the title search.
- Recording Fees: The attorney or closing agent will be responsible for submitting your mortgage document to the county recording office and paying the related fees and taxes (if applicable) from money collected at the loan closing. You will need to reimburse them for this expenditure.
- Prepaid interest: You may also be required to prepay a few days of interest. Each of your mortgage payments will include 30 days of accrued interest. However, because your first payment will generally be due more than 30 days after your loan closing, you will be required to prepay interest accruing from the time you close on your new home to the end of that month.
- Mortgage insurance: Mortgage insurance allows lenders to offer loans with smaller down payment requirements by protecting them from some of the loss if a borrower defaults on their mortgage. Conventional loans generally require private mortgage insurance (PMI) only when the loan is for more than 80% of the home's value. Government loans may be another option for homeowners and they are insured by the Federal Housing Administration (FHA) or the Veterans Association (VA). FHA and VA loans will require the borrower to pay a mortgage insurance premium at closing. Both government and conventional loans will generally require the premium to be added to your monthly mortgage payment as well.
- Real estate agent fees: As a buyer, you generally will not have to pay any fees or commissions to real estate agents. The commissions of both the seller's and buyer's agents are usually paid from the proceeds of the home. Typically a commission is 6% of the sales price, but this varies based on the market and may be negotiated by a seller. Sometimes homeowners will try to save money by selling their home themselves instead of engaging a real estate agent. They may be more willing to negotiate the asking price than other sellers since they don't have a commission to pay.
- Home inspection costs: A home inspection is not generally required by a lender, but it is a good investment when you are buying a home. Make sure your home purchase offer includes your right to a professional home inspection within a few days after your offer is accepted. If that inspection reveals an excessive amount of repairs, the offer can be negated and your earnest money down payment would be returned. Generally, home inspectors are not regulated or licensed by the local or federal government, so be sure to check your sources and find a good inspector. Fees will often vary based on where your home is located, how large it is, when it was built and what you need included in the inspection. However, the typical price range for an inspection is $300-$500. Come prepared with a home inspection checklist so you know what to expect and what questions to ask.
How should I pay my mortgage fees?
Most mortgage fees associated with closing your loan will need to be paid in full when you finalize your mortgage paperwork. But, you may be able to use earnest money to cover the cost of these fees. Earnest money is a good faith payment, used to show the seller how invested you are in buying the home. Generally this amount is 1-5% of the purchase price, but it may vary. If your offer is accepted, this money can either go towards your down payment or towards your closing costs. If your offer is rejected, however, your money will be returned to you. Keep in mind if you back out of a deal, you could lose any earnest money you've put down.
What is an escrow account?
An escrow account holds any additional funds required to pay for home-related expenses on your behalf. This may include private mortgage insurance premium when applicable, homeowners insurance premiums and property taxes. Escrow funds are paid at the same time as your monthly mortgage payment. Having an escrow account makes managing your home-related payments simpler as it spreads the expenses throughout the year and ensures payments are made on time.
What different mortgage rates are available?
Your ability to qualify for a specific mortgage rate is based on several factors, including your credit history, your ability to repay the loan, the value of the collateral, which in this case is your home, and the loan amount you are applying for. Keep in mind as you consider your options that the interest rate is the cost to borrow the money in your loan. You have several options when it comes to choosing your mortgage, and each comes with a different interest rate.
- Fixed-rate mortgages are designed with an interest rate that doesn't change during the life of the loan. This may be a good option if you plan to be in your home long term and don't want to worry about fluctuating interests rates over time. Typically, you have the option to choose between a 15-year and 30- year fixed-rate loan.
- Adjustable-rate mortgages are linked to an index, such as the PRIME or LIBOR, and therefore change as the market changes. Most adjustable rate mortgages will have an initial period of five to seven years, where the interest rate won't change. After that, the rate will start adjusting. If the market is low and trending lower, you may consider an adjustable-rate loan, especially if you're planning to be in the home for less than 15 years.
- Initial interest-only mortgages may be available with fixed or adjustable rates and don't require you to pay anything but interest on your loan during the first ten years of your mortgage. This feature generally requires you to have a significant down payment or equity in your home. It's great for borrowers who want to minimize their regular monthly payment and prepay their mortgage with bonuses or intermittent income boosts throughout the year. Make sure to check with your lender about any prepayment penalties, as some lenders may have a restriction on how soon you can pay down the loan in full. Keep in mind, unless you prepay the mortgage, nothing will go towards the principal during the interest only time period and the loan balance will not decrease. If you don’t have an interest-only mortgage, your payments will go toward both interest and principal each month.
- Jumbo mortgages were created to help borrowers in need of larger home loans. These loans are not backed by Fannie Mae or Freddie Mac, so jumbo mortgage rates may be higher than standard fixed or adjustable rate mortgages. In addition, a larger down payment may be required.
- FHA mortgages are guaranteed by the Federal Housing Administration. They offer a lower down payment and expanded underwriting flexibility and tend to have a higher rate than conventional mortgages.
- VA mortgages are guaranteed by the Veteran's Administration and are available for borrowers who are serving or have served in the military. They offer 100% financing and expanded underwriting flexibilities and also tend to have a higher rate than conventional mortgages.
Apply for a mortgage with Citizens Bank
Mortgage rates and fees will largely depend on the mortgage lender you select. Citizens Bank is a trusted lender and will work with you to determine the right option for your family as you purchase your home. We have both fixed-rate and adjustable-rate mortgages available, as well as jumbo mortgages to meet your borrowing needs. Start your mortgage application today or speak to a home loan advisor at 1-888-514-2300.
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