Applying for and taking out a mortgage loan so that you can purchase a home can be an emotional process filled with stress, excitement, frustration, and happiness. After all, buying a home is a big deal. It represents the beginning of a new stage in your life both personally and financially.
Applying for a mortgage is one of the major steps in the home-buying process and it is a significant financial decision. Taking out a mortgage loan is an important investment decision, so it is important to gain a full understanding of what the loan will really end up costing you. Before beginning the process of applying and getting a mortgage, it can be helpful to have an idea of what the hidden costs of a mortgage are.
The fees listed below are examples of some of the hidden costs that are associated with mortgage loans. It is helpful to keep these in mind when shopping around for your mortgage, because some lenders can help you reduce or avoid some of these fees.
- Arrangement fee. This is a fee that is charged by some lenders for arranging the mortgage loan. Oftentimes, it will be a percentage of the loan amount like 0.5%.
- Estate agent fees. If you are using an estate agent to sell a property, you will need to pay for the service provided by them.
- Brokers’ fees. Some brokers will charge you a fee for the arrangement of the mortgage or for the mortgage-related advice they provide you with. This can be a percentage of the mortgage amount or a flat fee, however not all brokers will charge a fee.
- Valuation fee. This is a fee paid to the professional valuer for estimating the market value of the property. A valuation is required by the lender during the mortgage application process.
- Solicitor’s fees. Your solicitor will either charge you a percentage of the mortgage amount or a flat fee for addressing the legal side of the mortgage loan.
- Structural survey fee. A structural survey can be optional depending on whether your lender requires it.
- Local property tax. This is a self-assessment tax charged on residential properties that can be paid as a lump sum or over the course of the year.
- Stamp duty. This is a tax that is incurred when ownership of the property is transferred from the seller to the buyer.
It is helpful to account for these hidden costs when deciding on how much you can afford to borrow, and therefore your final housing budget.