4 closing costs you can’t compare when buying a new home

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Home buyers should be prepared to pay a certain amount of closing costs before they can take possession of their new property.

It can be very expensive to cover the transaction costs associated with buying a new home, as closing costs can be anywhere from 2% to 5% of the home’s value (and that doesn’t even include ‘advance payment).

In some cases, buyers may try to lower their closing costs to keep their expenses as low as possible. You can do this by looking for services such as pest inspection companies or title companies. But unfortunately, there are four key closing expenses that you are generally not allowed to shop around and just accept the cost from your lender.

Here is what they are.

1. Expertise fees

Mortgage lenders generally require that a new home be appraised before giving you a loan. Lenders want to know what an expert thinks the fair market value of a home is in order to determine how much they’re willing to lend you to buy the property. Fair market value matters because the home is meant to be collateral securing the loan – so lenders don’t want to lend more than a set percentage of its value.

Assessments can cost several hundred dollars. And unfortunately, you are not allowed to choose your own appraiser or search for the appraiser with the lowest price. This is because of the strict regulations in place for most loans, which require lenders to order appraisals from valuation companies or management companies.

These rules aim to reduce fraud in the lending industry by ensuring that lenders do not choose appraisers who provide favorable home appraisals just to allow lenders to close more mortgages. The downside for buyers is that if their preferred mortgage lenders get appraised by a professional who charges a lot of money, buyers have no choice but to foot the expensive bill.

2. Credit report fees

Lenders will pull your credit report to check your credit. You can’t shop around and pay a lower fee for it because lenders have a standard credit reporting agency they work with, and that agency charges a flat fee.

Credit report fees shouldn’t be very expensive, however – they’re usually well under $ 50. Still, some lenders charge more than others, and it’s worth paying attention to how much your lender will charge to check your credit.

3. Flood determination costs

Lenders have an interest in finding out about the property that will secure the loan. And one of the things they want to know is whether or not the property is in a flood zone. If so, the lender will likely want you to purchase flood insurance. Lenders will seek a flood determination both to protect their own assets and because it may be required by the FDIC when the bank grants a new loan.

Homebuyers usually have to pay for a professional determination of the flood zone in which their property is located. You also cannot search for this service as it must be performed by licensed professionals trained to assess the likelihood of flood damage.

4. Fees for tax monitoring and tax status research

It is imperative to ensure that there is no unpaid tax debt on a property that is purchased, otherwise a tax lien could be placed on the house. As a result, lenders use tax services to ensure that homeowners have kept property tax payments up to date.

Again, there is no shopping for this because the lenders have established relationships with tax professionals who provide this service.

Since you can’t try to get the best price on these four fees, you’ll need to know how much your lender will charge for them and make sure you have the cash on hand. And don’t forget that the fees can sometimes vary depending on the lender. So while you can’t call appraisers or flood inspectors directly to see who’s offering the best rate, you can factor those costs into deciding which lender offers the best loan terms.

While higher interest rates and fees, like loan origination fees, may be more important in deciding which lender to choose, these required closing costs are just one more thing to consider when deciding which lender is right for you.

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About Mary Moser

Mary Moser

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