Buying a new home is an exciting time for many people. This is especially the case if this is your first home. Many first-time homebuyers are not always aware of hidden costs involved in the purchase.
In the heady feeling of potentially being a new homeowner, it is sometimes easy to overlook certain costs that will be involved and that are not always made obvious by the lender.
These hidden mortgage costs can add a substantial amount of change to the payment required to buy a new home. It is best to be armed with the knowledge of potential hidden costs before anything is signed on paper.
The first and most important thing is to shop around and find a mortgage lender that will give the best interest rates and terms for your requirements and you could use a comparison website such as moneysupermarket to compare mortgage rates.
When the right lender has been found, it is now time to inquire about the not so obvious costs that will be involved. Honest lenders will disclose the charges upfront. There should be no surprises down the road.
The most common costs many people do not give thought to are the fees associated with the transfer of the property and the charges involved with this.
Fees will have to be paid for the property appraisal. The title insurance of the lender and the credit report will all need to be taken into consideration. These are all legitimate fees.
When dealing with a mortgage brokerage it is not always so clear-cut. There may be fees for underwriting, warehousing, loan origination and document preparation.
Not all mortgage brokers will charge these fees but it is important to be aware that some will attempt to do this. It is important to ask the lender upfront what the fees associated with the mortgage will be.
There is a chance that the lender may ask to be paid a loan charge of one or two percent. This is what is known as points. You should inquire what kind of discount you would get on the rate of interest.
For every point paid there should be an interest rate reduction in your loan that is at a minimum, 1/8 percentage point. This should be for as long as you have the mortgage.
If you are planning on living in the home for a minimum of 10 years, pay the loan fee only. If you plan to sell sooner, it would be best to take the zero-cost and no-loan fee that includes all lender fees in the rate of interest.
Make sure that your loan does not contain a pre-payment penalty. This can add up to a substantial amount and may cause financial difficulties for the prospective home seller.
It is also important to be certain that the mortgage does not contain a negative amortization. If it does, it means that the interest rate is adjusted monthly or semi-annually. Any unpaid interest is then added to your loan balance.
These tips should help the future homeowner be a lot more aware of what the potential hidden costs of buying a home can be.