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Understanding Common Mortgage Fees and Closing Costs

If you’re planning to buy a home, you’re likely focused on saving for a down payment and ensuring you have the income to cover monthly mortgage payments. However, don’t overlook the mortgage fees that can arise during the process, adding to the overall cost of homeownership. Here’s an overview of the most common mortgage fees and some tips on identifying and potentially avoiding some of them.

Common Mortgage Fees and Closing Costs

Most mortgage fees fall under the category of “closing costs,” which typically range from 2% to 5% of the home sale price. These costs are generally paid on the day you sign your final loan documents and assume responsibility for the mortgage. By financially preparing for the following fees, you can budget effectively to help ensure the homebuying process goes smoothly.

1. Appraisal Fee

A home appraisal fee is one of the first fees you’re likely to encounter. Lenders require an appraisal to ensure the property’s value is sufficient collateral for the loan. This fee typically costs between $313 and $422, with most homebuyers paying around $354. The appraisal also benefits you as a buyer by verifying if the property is worth the amount you offered.

2. Home Inspection Fee

The average cost for a home inspection ranges from $275 to $400. This fee covers a professional inspection to ensure you aren’t buying a home with unknown issues. Many lenders require an inspection to protect their financial interest, but it also serves to protect you and your investment.

3. Loan Origination Fee

A loan origination fee is an upfront charge from your lender to review your application and perform necessary administrative tasks. These fees typically range from 0.5% to 1% of the loan amount. Make sure to ask what this fee includes to avoid double charges for any services.

4. Loan Application Fee

Application fees may be included in your loan origination fee, so read your loan documents carefully. These fees can cost up to $500, but some lenders may reduce or waive the fee if you already have an account with them.

5. Credit Report Fee

The credit report fee, usually around $35, is charged by lenders to pull your credit report from at least two credit bureaus. This fee is typically non-refundable, whether your loan application is approved or denied.

6. Recording Fee

This fee covers the local government’s charge to record your new property’s deed. The cost ranges from $20 to $250, depending on the county and municipal office.

7. Document Preparation Fee

The document preparation fee covers the preparation of documents signed at your closing. This fee typically costs no more than $100 and is usually disclosed upfront during the loan application process.

8. Title Insurance Fee

This fee is paid to a title insurance company to cover the costs of insuring the transfer of the title to your name. The average cost is roughly $1,000 per policy, though it varies by state and home purchase price.

What Are Junk Mortgage Fees?

“Junk” or “garbage” mortgage fees are excessive fees packed into your mortgage that often are not disclosed upfront. These fees may include charges for services already covered by other fees. It’s wise to talk to your lender, mortgage broker, or real estate agent to verify you aren’t paying twice or excessively for services.

How to Save Money on Mortgage Fees

While most mortgage fees are unavoidable, some are negotiable. Consider the following tips to save money on your mortgage fees:

• Review your loan estimate(s): Talk to your mortgage broker or lender about any fees that may be reduced or eliminated.
• Shop and compare loan offers: Comparing loan estimates from several lenders can help you identify the best mortgage loan.
• Negotiate the loan origination fee: If you have a good credit score, you may be able to negotiate a lower fee.
• Negotiate mortgage fees with the seller: You may be able to negotiate with the seller to cover some or all of the closing costs.
• Purchase discount points: Buying points can reduce your interest rate by prepaying a percentage of the total mortgage amount.

Before shopping for a mortgage, consider getting a free copy of your credit report. Knowing your credit scores and payment history can help you make informed decisions or take steps to improve your credit before applying for a mortgage.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the homebuying process with confidence.

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