How to lower closing costs and avoid fees when buying a house
- July 31, 2023
- 4 min read
Common mortgage fees
How fees affect the cost of homeownership
Ways to eliminate or minimize fees
On your journey to finding your home sweet home, you’ll have to prepare for a list of expenses — some more obvious than others. The cost of homeownership goes beyond your down payment and monthly mortgage payment. It’s important to consider other potential upfront charges, such as mortgage fees and closing costs. If you know what to expect, you may be able to avoid these extra expenses or lower what you owe.
Common mortgage fees
Many large banks and lenders charge mortgage fees, including lender, application, origination, processing and underwriting fees. Altogether, these add-ons can eat into your homebuying budget. That’s why, at Ally Home , we don’t charge any of these common lender fees.
Mortgage fees to avoid
While some costs are just part of homeownership, you may be able to minimize or eliminate other fees completely.
The last step before you can move into your new home is the closing. You can expect to pay 2% to 5% of a home’s purchase price in closing fees, which can include origination, application and process fees, discount points and underwriting fees.
Third-party fees — including title search fees, title insurance, attorney fees, recording fees and tax certification — may also be included in closing costs. Sometimes home appraisal and inspection costs are charged as part of closing, as well.
Lastly, private mortgage insurance and an escrow fee could be part of your closing costs.
When you get a mortgage loan, the lender charges a fee known as the origination fee, which may include processing the application, underwriting and funding the loan and other administrative costs. You can ask your lender to waive these fees. In some cases, you can also ask the seller to cover these costs.
Application fees are a non-refundable fee charged simply for submitting a loan application. This charge can be several hundred dollars and avoiding it could be as simple as shopping around for a lender that doesn’t have an application fee (like Ally Home).
If you pay off all or part of your mortgage early, some lenders may charge prepayment penalties. Before you close, read the fine print on your loan agreement carefully to see if it includes this fee. Understand the circumstances that would trigger penalties and how much you might owe.
This fee covers what it costs the lender to gather the required documents to process the loan. The dollar amount will depend on the lender, your mortgage amount and loan type.
Late payment fees
Tips for reducing mortgage fees
You can use a few different strategies to keep mortgage fees to a minimum.
Comparison shopping for lenders and mortgage products
You have a lot of options when it comes to the lender and mortgage product you choose. Take your time and compare lenders and loan types.
Negotiating to waive or reduce fees
Remember, fees are not set in stone. In many cases, you can negotiate with your lender to reduce fees or even waive them altogether. Talk to your lender about your options. You can also negotiate with the seller for them to pay for some of the fees.
Understanding the impact of interest rates on an overall cost
Besides the cost of the home itself, the biggest impact on the overall cost of your mortgage is your interest rate . To make it simple, if your loan balance is $100,000 and your interest rate is 6%, the annual interest amount you’ll pay is $6,000. A 5% interest rate would make that annual amount $5,000. Make sure you understand how your rate affects your monthly payments and don’t forget about the option to refinance your mortgage if you want to try to get a lower interest rate later on.
Minimize mortgage fees to lower your overall costs
Buying a home is one of the largest purchases you’ll likely ever make. Mortgage fees can add up quickly, but you can take steps to reduce or eliminate them. Achieve your dream of homeownership while sidestepping unnecessary costs.