To determine what costs or fees have been added to your mortgage amount you should review your Loan Estimate, which outlines your key mortgage terms including your interest rate and closing costs. The lender is required to provide a Loan Estimate within three business days of you submitting your loan application. The Loan Estimate should help you understand why your mortgage amount increased compared to the property purchase price and if the higher loan amount is justified.
Although you typically cannot add closing costs to a mortgage used to buy a property there are several items that can increase your loan amount even if the property seller is paying for all or part of your closing costs. For example, if you are paying FHA mortgage insurance or a VA funding fee then these charges can be added to your loan amount if you do not want to pay for them out of pocket. Additionally, if you decide to pay discount points, the cost of the points may also be added to your mortgage amount although this is relatively unusual.
If the seller is paying for closing costs then this figure should definitely not be added to your mortgage amount but rather deducted from the sale proceeds received by the seller. For example, if you are buying the home for $110,000 and the seller has agreed to pay for $4,000 in closing costs, then the $4,000 should be subtracted from the amount of money the seller received after paying off their current mortgage and any other closing fees the seller is responsible for.
Additionally, in most cases the property seller is responsible for paying all realtor or real estate agent commissions including the fees for the property buyer's realtor or agent. For example, if your agent is supposed to receive 3% of the purchase price and the seller's agent is supposed to receive a 2% commission then the seller usually pays the total 5% commission, which is also deducted from the property sale proceeds. You can review your offer to purchase agreement to determine which party is responsible for paying real estate commissions.
If the seller is responsible for paying the commissions then these fees should not be added to the purchase price or loan amount as this is effectively having the buyer pay for these costs, even if the buyer receives a rebate for part or all of the costs.
This is because if you add extra costs to your mortgage amount, then you pay interest on those costs over the term of your loan. For example, if you have a 30 year mortgage and your loan amount is increased from $110,000 to $116,000, then you pay interest on an extra $6,000 for 30 years, which ends up costing you a lot of money in the long run.
As I recommended above, take a close look at your Loan Estimate to understand the difference between your mortgage amount and the property purchase price. If you are satisfied after reviewing the Loan Estimate then you can move forward with the transaction.
If you believe a mistake has been made and fees have been incorrectly added to your mortgage then you should immediately attempt to correct the issue or renegotiate the terms of the property purchase. If you cannot come to an agreement that is satisfactory then you should cancel the transaction.
If you believe that your lender has made an error and is unwilling to correct it, we recommend that you contact other lenders to understand how they would handle your unique situation. The table below lists leading lenders in your area. We advise you to contact multiple lenders as shopping for your mortgage enables you to find the best loan terms.