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Understanding Mortgage Fees and How to Save Money

Buying a home is an exciting journey, but it comes with its own set of financial considerations. While most homebuyers focus on saving for a down payment and ensuring they can handle monthly mortgage payments, it’s crucial not to overlook the various mortgage fees that can add to the overall cost of homeownership. At O1ne Mortgage, we aim to make this process as transparent and affordable as possible. Call us at 213-732-3074 for any mortgage service needs.

Common Mortgage Fees and Closing Costs

Most mortgage fees fall under the umbrella category of “closing costs.” These typically range from 2% to 5% of the home sale price and are usually paid on the day you sign your final loan documents. By financially preparing yourself for these fees, you can budget effectively and ensure a smoother homebuying process.

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 enough to provide sufficient collateral for the loan. The cost typically ranges from $313 to $422, with most homebuyers paying around $354. This fee benefits you as well, helping you verify if the property is worth the amount you offered.

2. Home Inspection Fee

The average cost for a home inspection runs from $275 to $400. This fee covers a professional home inspection, which is critical to making sure you aren’t buying a home with unknown (and potentially costly) problems. 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, verify your information, and perform other 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.

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 do not charge an application fee at all. Always check with your lender to avoid unnecessary costs.

5. Credit Report Fee

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

6. Recording Fee

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

7. Document Preparation Fee

The document preparation fee covers the preparation of the many documents that will be signed and organized 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 and covers 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 can include redundant 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 fees and other closing costs are negotiable. Here are some tips to help you save money:

Review Your Loan Estimate(s)

When you apply for a new mortgage, the lender must give you a loan estimate detailing all the costs and payments associated with the loan. After reviewing your loan estimate, talk to your mortgage broker or lender about any fees that may be reduced or eliminated.

Shop and Compare Loan Offers

Having loan estimates from several lenders can help you compare mortgage fees and other closing costs—along with your interest rate and term—to identify the best mortgage loan. Getting quotes from appraisers, title insurance agents, inspectors, and other professionals may also help you negotiate lower prices.

Negotiate the Loan Origination Fee

If you have a good credit score, you may be able to negotiate with your lender for a lower loan origination fee or have it removed altogether. However, a lender may require you to pay a higher interest rate or extend your loan term to secure a lower origination fee.

Negotiate Mortgage Fees with the Seller

You may be able to negotiate with the seller to have them cover some or all of the closing costs. They can do so by contributing a portion of the purchase price toward the closing costs, lowering your upfront expenses. Note that not all lenders or loan programs allow seller concessions, and there’s no guarantee a seller will agree to them—especially in a hot housing market.

Purchase Discount Points

Buying points is a way to reduce your interest rate by prepaying a percentage of the total mortgage amount. By paying this upfront, your interest rate will drop, and your monthly payment will be slightly lower. Generally, the interest rate decreases 0.25% per discount point purchased. Ask your lender about the possibility of discount points when shopping for a loan.

Review Your Credit Before Applying for a Mortgage

Before shopping for a mortgage, consider getting a free copy of your credit report. When you review your report, you see what lenders will see when they evaluate your mortgage application. Your credit scores and payment history are critical factors lenders consider when determining your mortgage approval and interest rate. Knowing these factors ahead of time can help you make informed decisions or take steps to improve your credit before applying for a mortgage.

At O1ne Mortgage, we are committed to helping you navigate the complexities of mortgage fees and closing costs. For expert advice and personalized mortgage services, call us at 213-732-3074. Let us help you make your homebuying journey as smooth and affordable as possible.

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