The Impact of a Property Survey on Mortgage Closing Costs

Investing in property often involves a labyrinth of processes, including inspections, surveys, mortgage acquisition, and, eventually, closing procedures. One crucial yet frequently overlooked component is the property survey.

In this article, we will explore the impact of a property survey on mortgage closing costs, including why surveys are important, the cost of surveys, and how they can affect your overall home-buying experience.

What is a Property Survey?

A property survey is a detailed examination that aims to define the boundaries, topography, restrictions, and legalities associated with a property’s land. Essentially, it outlines what you are purchasing beyond the physical structures themselves.

Professional surveyors are responsible for conducting property surveys. They accurately measure property boundary lines, identify encumbrances (such as easements or liens), and uncover any potential property line disputes that may affect property ownership.

The Role of Mortgage Lenders

The primary role of mortgage lenders is to mitigate risk, and that involves a need for thorough property knowledge. It is often the mortgage lenders who require a property survey—viewing it as a safety net that offers a measure of protection against unforeseen property issues.

Several types of surveys might be required by your mortgage lender, including:

• Boundary Surveys: They establish the exact property boundaries to avoid future disputes.
• Floodplain Surveys: If the property lies in a flood zone, a floodplain survey is essential.
• ALTA Surveys: American Land Title Association surveys are often needed for commercial properties and involve a more detailed analysis of the land.

Types of Property Surveys

Property surveys come in various forms, and the type you need can impact your mortgage closing costs. Here are some common types of property surveys:

Boundary Survey

A boundary survey focuses on the property's boundaries and any encroachments. This type of survey is often required by lenders to ensure there are no boundary disputes or encroachments.

ALTA/NSPS Land Title Survey

This survey is more comprehensive and is typically required for commercial properties. It includes boundary information, encroachments, and an evaluation of title documents.

Topographic Survey

A topographic survey provides details about the property's physical features, such as elevation, contours, and any existing structures. This is often required for larger land purchases or properties with unique terrain.

Mortgage Location Survey

This is a simplified survey that focuses on the location of structures on the property in relation to the property lines. It's typically less expensive than a full boundary survey but may not provide all the necessary information.

The Cost of Property Surveys

The cost of a property survey can vary significantly depending on several factors, including the location of the property, the type of survey needed, and the complexity of the land. On average, property surveys can range from a few hundred to a few thousand dollars. Here are some cost considerations:

Location

The location of the property can influence survey costs. In rural areas, where properties are more extensive, and there are fewer existing structures, surveys may be less expensive. In contrast, urban properties with complex boundaries and numerous structures can be more costly to survey.

Type of Survey

The type of survey you need will also impact the cost. A basic mortgage location survey is generally less expensive than a boundary survey or an ALTA/NSPS Land Title Survey. Commercial properties often require more comprehensive surveys, which can be substantially more expensive.

Property Size and Complexity

The size and complexity of the property play a significant role in survey costs. A small, rectangular lot with clear boundaries will be less expensive to survey than a large, irregularly shaped lot with disputed boundaries.

Surveyor's Experience

The experience and reputation of the surveyor can also affect the cost. Highly regarded surveyors may charge more for their services, but their expertise can provide peace of mind.

The Impact of Property Surveys on Mortgage Closing Costs

Closing costs represent the combined fees required to close on your home and are typically expressed as a percentage of your total home purchase price—in most cases, between 2% and 5%. Included within these closing costs is the price of your property survey. The exact cost of a survey can vary greatly depending on the property type and size, the survey's depth (e.g., boundary, topographic, ALTA), and the surveyor’s fee.

However, the impact of a property survey on mortgage closing costs goes beyond mere cost considerations. Here are a few ways a property survey can impact:

Aids in Accurate Pricing:

Accurate surveys can help in pricing the property better. Therefore, a precise survey ensures that a buyer pays the right amount for their property—this protects both the buyer and the lender from overpriced property deals.

Mitigates Risk:

A detailed property survey minimizes the risk of future property disputes, encroachments, and easements, so it significantly reduces the risk associated with mortgage lending and potentially lowers the overall mortgage costs.

Satisfies Mortgage Lender Requirements:

Meeting the lender's demands for a property survey expedites the mortgage application process, ensuring everything runs smoothly and potentially saving both time and money.

Hidden Perils and the Need for a Recent Survey

If a property survey reveals significant issues—like an encroachment on the property, the property residing in a hazard-prone zone, or a portion of the structure lying outside of the property boundaries—this can halt or even terminate the mortgage process.

Likewise, outdated surveys might not account for recent changes to the property or the land. Hence, a current survey can influence whether a mortgage lender provides funding, affecting both the mortgage process and overall closing costs.

Do You Need a Property Survey?

The necessity of a property survey depends on various factors, including the location of the property, the lender's requirements, and your risk tolerance. Here are some considerations when deciding whether to obtain a property survey:

Lender Requirement

If your mortgage lender insists on a property survey, you have little choice in the matter. You'll need to comply with their requirements to secure the loan.

Location and Property Type

The location and type of property can significantly impact the need for a survey. In rural areas with well-defined boundaries, a survey may be less crucial. However, for properties in urban or densely populated areas with complex boundaries, a survey is often recommended.

Potential Boundary Disputes

If you suspect there may be boundary disputes or encroachments on the property, it's wise to get a survey to clarify these issues before purchasing. Resolving such disputes after the purchase can be costly and time-consuming.

Future Plans for the Property

Consider your future plans for the property. If you intend to make substantial changes, additions, or renovations, a survey can provide essential information for these projects.

Final Thoughts

The role a property survey plays in determining mortgage closing costs is immense, offering more than just precise boundary lines. It provides both the lender and the buyer with invaluable insights into the full range of the property’s potential financial risks. Without a thorough property survey, buyers and mortgage lenders cannot accurately calculate these risks, resulting in potential financial pitfalls.

To ensure a smooth mortgage process, it’s necessary to budget for the cost of a property survey in your closing costs. Remember, it is not just an add-on service—it’s a critical part of the home-buying process that guarantees you are making a sound financial investment.

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