If you want to finance the purchase or construction of a property with the help of a bank, you must also be prepared for several other loan-related costs. Most of them are much lower than the total amount of interest or bank commission, but each is mandatory and increases the total cost of the loan.
Real estate appraisal
In the loan application, you indicate the price of the property being purchased or its target value (in the case of construction). The bank still needs documents confirming its real value. That is why you must use the services of a real estate appraiser who will carry out the appraisal report. Such a specialist may work for the lender, but you can also choose another appraiser that he accepts (if the bank allows it). You will pay from several hundred to over 1200 dollars for assessing the value of a property, depending on its size and location.
Real estate insurance
Because the property is collateral for loan repayment, each bank requires insurance. A policy for a flat or house can cost from about $ 300 to over $ 1,000 a year. Its price depends, among others, on the type, size and location of the property, as well as the security devices used, and of course the scope of protection.
Real estate insurance for the purposes of credit usually covers the so-called walls (walls) and solid elements (doors, floors, sanitary fittings and electrical installations). Most often, such basic insurance protects a bank against a situation of total destruction as a result of a fire or other random event of the property being the subject of collateral for the loan.
This is another, third cost of a mortgage that is directly related to the property. Bridging insurance works only in the period preceding the final entry of the mortgage in the land and mortgage register (usually you have to wait for it no more than a few months). When buying a property from a developer who is just building a property, such insurance may take several or even several dozen months.
The policy protects the bank against the risk of loan defaults in the first months after receiving the funds. From your perspective, it means a temporary increase in the margin of about 1 percentage point. This translates into an additional cost of several dozen to several hundred dollars per month.
Purchase of such protection is not mandatory in every bank. Thanks to the life insurance policy, in the event of the borrower’s death, the insurer pays for him the outstanding amount. Were it not for the policy, this obligation would pass to his family.
The cost of life insurance for a mortgage depends not only on the scope of protection, but also on the amount of the loan. In practice, the insurance premium here is usually a percentage of the fee, calculated from the outstanding amount of the liability. Considering a $ 300,000 loan and 0.3% premium, the policy price in the first year will be $ 900. In subsequent periods this value will gradually decrease.
It is worth noting that after a few years of timely repayment of the loan, you can most often, without causing negative changes in repayment terms, cancel your life insurance policy.
Real estate inspection fee
This cost of a mortgage arises when you build a house with the help of a bank or buy a new apartment that has not yet been opened. A bank employee appears at the construction site before the payment of each subsequent tranche of the loan. Each time such real estate inspections involve a fee of approximately $ 150-200.