7 Common Junk Fees On Mortgages and How To Avoid Them
Purchasing a real estate property is a tedious task. It’s not a life decision you immediately decide on once you feel like it. It requires a lot of thinking and a lot of preparation. While you are in the process of shopping for real estate there is also a high chance that you’ll get lost in terms and other complicated processes. The most challenging part is securing a mortgage loan. You can do this before you shop for a real estate property or after you’ve chosen your desired property. Either way, the process behind getting a mortgage loan will be the same. You go to a lender and then ask if they are willing to let you borrow money from them. You’ll pay the principal amount and the interest over time. This can take you 15 to 30 years depending on how you choose to pay it. Aside from the down payment at the closing stage of the mortgage approval, there is a high chance that you’ll also be charged with other fees. These fees are called the garbage fees or the junk fees. It’s other fees that the other party will charge you during the closing of the loan. Some of them are absurd and can be avoided so you save money. This article will tell you how. Here are the 7 common junk fees on mortgages and how to avoid them.
1. Appraisal Fee
A home appraisal is important. It’s required by many lenders. It’s also a way to find out that you’re buying the house at the price value of its worth. This step will help you avoid fraud or lies told by anyone selling the property to you. However, a home appraisal is expensive. It can cost up to $1,000 depending on the location and the size of the property. It also has the potential to slow down the process especially if the home appraisal found out that the property is not worth its value.
How to avoid Appraisal Fee
One way to avoid appraisal fees is to waive them. Ask the lender if you could skip the home appraisal step. Not all can apply for this. There is a high chance of qualifying for this if the property has just been recently appraised. If an appraisal is required in your case, then there’s no escape. You cannot avoid it. The only way to save from it is to minimize the cost by negotiation.
2. Document Preparation Fee
The lender will have a lot of paperwork to do before, during, and after the mortgage loan. They don’t do it for free. As they work on the loan estimate that you qualify for they will have to spend a lot of resources such as time, money, and manpower. These are all fees that will be charged to you. Don’t worry if you can’t avoid these. After all, it’s just a small amount. Also, it’s understandable because without people working to process your loan, you won’t be able to get it. Fees from document preparation can cost up to $100. This depends on the lender.
How to avoid Document Preparation Fee
Just like any other junk fee in mortgages, the main key to avoiding or minimizing them is to negotiate with your lender. Ask them about what this fee is all about and why it’s necessary. If you think they charge too much, ask why and if the fee is still negotiable.
3. Application Fee
Application fee for a mortgage is quite a controversial topic. It’s a topic that lenders don’t agree on. Some charges their borrowers with an application fee and there are also who don’t. The application fee is a cost you pay upfront. It’s also called underwriting or loan origination fee. The cost depends on the amount of money you borrow. It’s a percentage of the principal amount. This indicated further that the higher you borrow the higher your application fee will be. The highest percentage they can charge is 1% of the amount that you are going to borrow.
How to avoid Application Fee
Some lenders do not require an application fee. This is the only way to avoid paying an application fee. Find a lender that doesn’t charge one. If your lender charges you an absurd amount, try to negotiate. Compare the application fee that most lenders on the market charge their borrowers. This will give your lender an idea of the typical application fee for a mortgage.
4. Credit Report Fee
Your lender is most probably going to do a credit check on you. It’s to test and see for themselves if you can pay back the loan. It’s also to endure themselves that the money will come back to them and you’re not going to run away from your responsibility. Your credit score will determine how much loan amount are you qualified for. The lender may not permit you to take a mortgage that you are not capable of paying. Fees from a credit report can cost you up to $50. It’s a small amount but still a lot of money you can save.
How to avoid Credit Report fee
Some lenders shoulder the fee for the credit report. It’s them who will perform the task, anyways. If your lender charges you with a credit report fee ask them why. It should only be a small amount. You can also look for lenders who don’t charge credit report fees.
5. Title Fees
By now you should have expected a lot of fees that you will shoulder from securing the title of the real estate property that you want to buy. It’s inevitable. You have to have the title so you have proof that you own the property. It’s an assurance to you and your lender. They will require you to secure the title but you’ll be the one to pay the fees that will come with it. The first fee is the title search fee. You have to make sure that the property is owned by the seller of the house. It’s a way to avoid fraud. The fee depends on the title company that you will hire. You also have to pay for your local recording office to record your purchase of the property. The fee depends on where you live. The lender might also require title insurance.
How to avoid Title Fees
Title fees are inevitable. There is no way to avoid them. Avoiding them will put you at a high risk of being a victim of fraud. The only way to save money from them is to negotiate with the lender. Ask if the lender will shoulder any title fees. Look for a lender that will shoulder the title fees.
6. Home Inspection Fee
A home inspection fee is advised for buyers of the house. This step may also be required by your lender. It’s a way to let them know that the house that you are going to buy is still in a good condition. It’s to help you and them know that the house’s structure and other parts are indeed livable. You will be charged up to $500 with this one.
How to avoid Home Inspection Fee
Some lenders don’t require a home inspection fee, especially if the house is just newly built. Some lenders shoulder the fee for a home inspection. It’s only a matter of choosing a kind and considerate lender. If your lender requires you to then look for an affordable home inspector.
7. Taxes
There will be a lot of taxes that you will have to pay when you buy a property. It’s inevitable and the legal way to purchase a house. Avoiding it will only result in fines and even imprisonment. The thing with taxes is that it’s complicated to understand. Consult a professional if you need to. Maybe there is still a way to reduce the taxes that you pay. AS WE’VE SAID EARLIER THERE IS NO WAY TO ESCAPE TAXES. The tax that you’ll pay will also depend on where you live. Some taxes are also split between you and the seller of the house. One example of this is the transfer tax. You do not shoulder all the taxes.