Mortgage Fees – The hidden secret of home ownership.

by Aug 14, 2019Financial Research

Intro

What Will it Cost to Own a Home?

As a home buyer, you should estimate about 10% of the cost of the home for fees if you are taking a mortgage and 6% if you are not (not including the downpayment). Although I mentioned some of the fees in my articles Steps Towards Home Ownership and How To Calculate the Savings from Reduced Stamp Duty and Transfer Tax, I wanted to have one post summarizing what the fees are to own a home, because I think this may be the hardest thing to understand. Always consult with your lawyer and mortgage provider to confirm any fees that you are required to pay. The information here is from my own research and may vary by circumstance. 

The three categories of fees I will explain include:

– Fees paid through/to a lawyer 

– Fees paid to the mortgage company

– Fees paid directly to other related parties

After listing what the fees are estimated to be I will explain what some of them are for. If you want to go directly to the fee estimate calculator click here.

 Estimated House Buying Fee Calculator

With a 10% down payment, based on calculations done in the sheet, for someone taking a mortgage the fees& deposit are approximately 20% of the sale price. For someone not taking a mortgage, the fees & deposit for the buyer equate to about 16% of the sale price.

Fees Paid Through/To a Lawyer [1]

These fees typically include:

– The Downpayment: The bank may indicate that they need to see evidence of your interest in the property and so you may have to make a 5% to 10% deposit on the property. This is calculated on the sale price indicated to you by the vendor e.g. if the property is being sold for $15M, you may have to pay the vendor $1.5 million and borrow the remaining $13.5 M from the mortgage company.

Stamp Duty ($2,500 each) – Seller and Buyer

Transfer Tax (2%) – Seller 

Legal Fees (approx. 3% each + GCT) – Seller and Buyer

Sales Agreement – (0.2% each) – Seller and Buyer

Registration Fee (0.25% each) – Seller and Buyer

Real Estate Agent Fees (approx. 5% +GCT) – Seller

The fees that are approximated are based on negotiations with your lawyer or real estate agent so confirm with them first.

 

Fees Paid to the Mortgage Company

Fees Paid directly to the mortgage company (closing costs) will vary by financial institution. I have used the fees cited by JN Bank here as an example.

Credit Report Fees (approx. $2,000)

Stamp Duty on mortgage and copy mortgage: 0.625% plus $510;

Registration Fee: 0.5% of loan amount.

Legal Fees: 0.5% of loan amount + GCT.

Commitment Fees (0.58% – 2.25% of loan amount)

Fees Paid Directly to Other Related Parties

Fees Paid directly by the Buyer or Seller include:

Land Survey Fee (approx. 0.3%) – Buyer

Property Valuation Fee (0.3%)- Buyer

The Seller may want to get a Land Survey or Property Valuation (independently of the buyer) to ensure they are selling for the right price. It is usually mandatory for the Buyer to get both of these in order to get a mortgage. The buyer and seller’s valuators may (and likely will) come up with two different values for the same property. 

 

Explanation of Fees

What are each of these Fees For?

 Stamp Duty and Transfer Tax

Usually paid on your behalf through your legal representative, these fees are to pay the government to transfer the property and register it to the new owners. There was a recent revision to how this is calculated as explained in my article How To: Calculate the Savings from Reduced Stamp Duty and Transfer Tax. Stamp Duty is now a flat fee of $5,000 and Transfer Tax is now 2% of the value of the property and paid by the SELLER.

Sellers: Note carefully that this value can be HIGHER than the amount you are selling the property for.

I have had a personal experience where the property was being sold for one price and when it went to the tax office for assessment, they indicated that had to assess the value of the home for almost $20 million more than the sale price, which pushed up the transfer tax and stamp duty drastically, resulting in that sale falling through. They have now reduced the Stamp Duty so that wouldn’t have happened today.

 

Sales Agreement

Your lawyer will prepare a Sales Agreement for both you and the seller to sign that dictate the terms and conditions of the Sale. These could include:

  • The Downpayment required
  • The Legal Fee for preparing the Agreement
  • The Legal Fee for preparing letters to the Utility Companies (NWC, JPS etc.) indicating your possession of the new property.
  • The closing date* (e.g. 60 days from the date of the Agreement)

*The closing date clause will indicate what happens if you do not provide the lawyer with a letter of undertaking (guarantee) from your mortgage company within 60 days. It should usually say you will be entitled to a full refund of your down payment. The seller will have the option not to proceed with the sale.

Registration Fee

Typically also paid on your behalf by your lawyer, this fee is to register the Title of the property with the Registrar of Titles.

Land Survey Fees

A mortgage company will want to ensure that the land that’s being used to secure the property actually exists and it is where you think it is. A licenced land surveyor can tell you the boundaries of your property and the square footage. Check the National Land Agency http://nla.gov.jm/content/list-practising-surveyors to find the list of persons who are licenced to do a Land Survey.

Why do they do this? Image you thought you were purchasing a property that’s half an acre when its only legally a quarter acre? That affects the property value and the price you’re about to pay. The way to make sure you are getting value for money is by doing a Land Survey. Mortgage companies require this document to provide you with a loan.

Property Valuation Fee

For you to know how much your property is worth, an experienced valuator will go to the property, do an assessment of size and amenities and then calculate the market value based on similar property prices in the area and other factors. This is a compulsory exercise if you are obtaining a mortgage, so that the lender knows the true value of the asset that they are giving you a loan for.

Credit Report Fee

The mortgage company will request a copy of your credit score directly from the Credit Bureau(x). They will use this score to assess your credit behavior, to assess if you have defaulted on any loans in the past and to determine your habits of repayment.

I suggest anyone taking a mortgage access their free credit report from CRIF or Credit Info. If you have been paying your bills late or have previously stopped paying on a loan or credit card, you may hurt your chances to qualify for a mortgage, so take your bill payments seriously.

 

 

It is important to get as many of these documents together as early in the process as you can so applying for the mortgage can be a smooth process, but again, speak with a mortgage representative first on the specific requirements.

 

How Do I Calculate The Fees?

To estimate what the fees would be, input both the total purchase price of the home and the loan amount in the Mortgage Calculator located here https://bit.ly/2Z2KycW. Again, keep in mind that these are estimates and you should always check with your lawyer or mortgage provider for the fees.

 

I welcome any feedback on this or other articles at gillyj@gmail.com. 

[1] See my post on Steps Toward Home Ownership which explains why using a lawyer is necessary.

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