For those of us who aren’t car savvy, getting an oil change can turn into a stressful ordeal. All the questions the mechanic asks are important but sometimes impossible to decipher. So after about an hour of pretending to look like you’re deep in thought and nodding, you’re presented with a bill that doesn’t make any sense and doesn’t add up. Many find this parallel to the costs associated with getting a mortgage but that’s an unfair comparison. Mortgage fees can be explained very simply, and don’t require time under the hood to figure out. That’s why in this week’s Know Your Mortgage, we’ll focus what third party fees are to eliminate any confusion about them.
What Are Third Party Fees?
Third party fees are pretty straightforward: fees from a third party that usually don’t involve the lender. These third parties can be attorneys, insurance agencies or any association important to the home loan process that, again, the lender is not a part of. Third party fees are part of your closing costs, but do not encompass the entire thing. For example, the down payment on your home is typically the biggest part of your closing costs and is not third party fee. Many people get confused by third party fees because they don’t bother to ask their mortgage company what these fees are which are used to cover a number of different services.
What Do Third Party Fees Go Towards?
They can go towards lots of things, and they’re not necessarily the same (or cost the same) for everyone. We’ve covered potential third party costs in the past on the Zing blog, but here’s another brief overview of the biggest third party fees you may come across (click on the other two links to get a more in-depth look):
This is mandatory for any potential new homeowner, and is done before the loan is approved. Appraisals are done to ensure that you don’t take out a loan that’s more than your house is worth.
A title company or attorney is required to oversee the closing of your home as an independent (third) party, and a fee is associated with this.
Title Company, Title Search or Exam Fee
This is a fee involving a search on your property records. A title company is going to take a peek at prior deeds, property, name indexes and many other things to make sure there aren’t any liens or problems with you owning the property.
This is done to make sure your property lines are accurate and that no one is encroaching on your new property.
Title Insurance (Lender’s and Owner’s Policy)
These are two separate fees; the lender’s policy is to assure you own the home and that your mortgage is a valid lien. The owner’s policy is insurance to protect you in case someone challenges your ownership.
The entire first year of homeowner’s insurance is usually required at closing, and this is meant to cover any sort of damage done to the home.
As you can see, none of these services can be done by the borrower or lender involved in the home loan process because it creates a conflict of interest, which is why third parties are involved in the first place. It’s important to mention again: the above list is not all the third party fees you may run in to. There are more, but these are the bigger ones. If you have questions about these additional fees please comment below.
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