Getting a mortgage can be a costly endeavor from the onset. You’ve got to worry about getting together a down payment, securing an affordable interest rate and covering closing costs, among other things.
What you may not realize is that the total costs of your mortgage can wind up rising before you close on the loan, especially if you don’t plan accordingly. Fees associated with a home loan can change for a slew of reasons, but here are the most common ones to look out for.
1. You Take Your Time Supplying Documentation
When your lenders asks for bank statements, pay stubs or any other form of supporting documentation for your mortgage application, it’s in your best interest to get this paperwork to them as quickly as possible. In fact, aim to do so within the following 24-to-48 hours. Failure to provide documentation in a timely fashion can result in having to take a rate-lock extension, which could drive up the total cost of your loan.
See, an interest-rate lock is only good for a certain period of time, typically for 30 days or, in some cases, as long as 45 days. Essentially, a rate lock locks in the rate you’re going to pay over the life of your mortgage for a certain period of time under certain terms. But, as the market moves, the value of this rate lock to the end investor can go up or down.
As an example, let’s say you lock in a 30-year fixed-rate mortgage at 3.625% with no points on $500,000 loan. As the rate-lock’s 30-day window expires, it is determined you’ll need another 10 days to close. Meanwhile, interest rates changed and are now at 3.875% on a 30-year fixed-rate mortgage on that same $500,000 loan. Since rates rose and your lock-in date has passed, it is now more financially advantageous for the end investor to lock in a new loan with a higher interest rate. Depending on the situation, the lender would either re-lock your loan at worst-case market pricing or would allow you to extend your loan, potentially driving your loan fees higher.
2. You’re Derailed By External Factors
External factors can also cause delays in escrow. These can include the seller of the property failing to quickly sign required documentation or home appraisal delays. These delays aren’t your fault, but can still cause you to have to pay more money when extending your interest rate lock. Best to plan accordingly. This means ordering an appraisal upfront when buying a home in order mitigate delays down the line. When refinancing, it’s a good idea to order the appraisal at loan application or to plan for a 45-day escrow timeframe.
3. The Appraisal Doesn’t Go as Planned
Residential real estate appraisers have total and complete authority on the value of your property. Most mortgage companies have a set standard appraisal fee. However, the appraiser has the right to change what they want to charge for the appraisal. For example, if the appraiser has a heavy workload, they may require more money to complete the order. They also may deny the order, resulting in the lender having to find a new appraiser. If you’re on a tight closing deadline, you may have to pay the additional fee to have the appraisal done quickly or within the timeframe stated in your purchase contract.
If your appraisal does not come in at the desired value, changing the loan-to-value ratio on your mortgage, you may also subsequently face higher fees and/or rates than you were expecting based on the prior valuation of the home. Additionally, if the property is missing a carbon dioxide detector, which in some states is required by law, the appraiser must to go back out to the property to sign off on the appraisal following installation, resulting in an additional charge.
The best way to mitigate additional fees is to stay in constant communication with your lender. You can also generally lower the cost of your mortgage by improving your credit, since a good credit score will help you qualify for the best interest rates.