Understanding the Costs of Obtaining a Mortgage

If you are ready to purchase your first home, you have probably spent quite a bit of time thinking about how much home you can afford, calculating costs like your monthly payments, your homeowners insurance, and property taxes. However, there are additional costs—called closing costs—to obtain a mortgage in Utah that might take you by surprise if you do not know about them.

 

What Are Closing Costs?

 

The term “closing costs” is a general term used to describe any costs that are charged to potential homebuyers as part of closing the loan. These fees must be settled at the time that you make the purchase, or when you close the loan, which is where the term “closing” costs come from.

 

Who is Charging Me These Costs?

 

Most of the closing costs charged to homebuyers are actually from third-party companies, and the mortgage lender is just passing those costs from these other companies on to the buyer, although some of the costs might be from the lender. The buyer is generally responsible for covering these costs, but in some cases other parties in the transaction might agree to cover some or all of these charges. For example, someone who purchases a home with a VA loan might be able to get the seller to pay some of the closing costs. In other cases a private seller might agree to pay closing costs as an added incentive to sell the home faster.

 

If a mortgage lender is advertising a no-closing-cost loan, be sure to ask them about the specifics. In some cases you will still pay these costs, they will just be rolled into your overall loan instead of being due up front at the closing. That can be a good solution for buyers who don’t have a lot of cash available to pay closing costs, but it means you will be paying interest on those costs for 30 years as part of your mortgage.

 

How Much Will it Cost?

 

The exact total for closing costs depends on your home price and your lender, but generally speaking they will add up to around 2 to 5 percent of your total home sale price. They cover costs associated with the loan, such as:

 

  • Credit report fees
  • Loan origination fees to process the paperwork
  • Fees for any legal counsel
  • Inspections and appraisals
  • Surveys, if needed
  • Searches on the home’s title
  • Title insurance
  • Deposit for your escrow account (the account from which property taxes and insurance are paid)
  • Recording fees for county or city records
  • Evaluating the borrower prior to underwriting the loan

 

If you choose to pay “points” to reduce your interest rate, that will also be a cost that is due at closing.

 

Knowing what you might expect at closing can help you plan and save in advance of your loan closing so you won’t be surprised. You can always ask your Utah lender for a good faith estimate (GFE) of these costs so you know how much you will need.

Should You Consider a Reverse Mortgage?

You have been save your whole life for retirement, but when the time comes, sometimes you can find that your nest egg is not quite as big as you expected it to be, or that your expenses are higher than you thought. Fortunately today there are things you can do to help increase your retirement income without going back to work. One of the most popular, and perhaps one of the most widely advertised in recent years, is a reverse mortgage. While this is not necessarily the right choice for everyone, it might be an option for you. Here are some questions you can ask to find out.

 

1: Is This Something You Need?

 

A reverse mortgage is a great tool to help someone who is unable to meet his or her living costs and needs on their current retirement income. If you’re just getting it because you want to have extra cash to take a big vacation, or you’re planning to take the money and invest it elsewhere, there might be better options out there. As with any loan, there are costs associated with a reverse mortgage in Utah, so the benefits need to outweigh these costs.

 

2: Have You Calculated the Costs?

 

There are generally two types of reverse mortgages: one that you get the money upfront, another that you get paid over time.

 

For upfront loans, you will have to pay lender fees, mortgage insurance (based on the size of the loan), and closing costs. You may be able to pay these costs out of your loan fund, but that means you will get less cash from the transaction, and you will pay interest and ongoing mortgage insurance on those costs.

 

Loans paid over time will have costs associated with interest and ongoing mortgage insurance premiums—both based on the current loan balance. The exact interest rate depends on your reverse mortgage lender, so be sure to compare rates. For that reason it’s important not to take out a bigger reverse mortgage loan than you need.

 

3: Should You Use Your Home Equity Now?

 

Getting a reverse mortgage today means you will have less home equity to work with in the future, and if you need that money for future living expenses, healthcare, or another emergency it won’t be available to you. For that reason it’s important to evaluate whether you need the income now and wait before you get this type of mortgage if you don’t think you need it.

 

4: Do I Know How These Loans Work?

 

One of the most important things to determine before you get a reverse mortgage in Utah is whether you truly understand this type of loan, the costs, and what it will provide. They are different from traditional loans, so if you’re unclear about any of the costs or benefits, talk to your lender right away.