Mortgage Fees - What Should You Pay, What Shouldn't You
Mortgage Fees will always be involved if you’re purchasing a property so long as you aren't paying cash. your mortgage down payment isn’t the only upfront payment you’ll be making. You will also have to write a check for closing costs. You can expect to pay 2% – 5% of your home’s purchase price in closing costs.
It is widely believed that all mortgage fees (closing costs) go to the lender. In reality, many costs are related to services performed by others; that lenders typically have no control over.
To avoid surprises, carefully check our breakdown of common closing fees below and never hesitate to ask questions. A good loan officer should be able to describe all mortgage fees and who it pays on your behalf.
The Mortgage Origination Fee
The lender and or loan officer charges a loan origination fee for closing a loan. The origination fee sometimes called origination points, is generally determined as a percentage of the total loan cost and it normally ranges between 0.5 and 2% of the loan amount. You generally will never pay this unless your loan closes. Please be aware and respectful of the upfront work your loan officer does. They will not be paid unless the loan closes with you.
The Mortgage Appraisal Fee
Mortgage lenders require an appraisal on the property you plan to buy before they’ll provide a loan. This is due to the fact that the property is an underlying asset that serves as collateral for the loan. For most loans, a typical property appraisal takes a few hours or less and depending on the state and appraiser it will cost around $450 or $600. Jumbo loan appraisals will cost more as does custom built home appraisals. Your loan officer should be obtaining an estimate for the cost of these two types.
The Mortgage Processing Fee
This is a fee paid to the mortgage company or loan processor for services related to preparing your loan application. The processor takes care of several tasks, but not limited to, ordering verifications from 3rd parties, reviewing your documents to make sure they meet standards and stacking the file for the underwriter. This is not a junk fee and it actually goes to pay a person behind the scenes working on your loan.
The Credit Report Fee
Your lender will pull a credit report for each potential borrower. When you apply for a home loan, you have to show that you are capable of paying it back. Therefore mortgage lenders will request a copy of your credit report to establish the risk you present.
Fees differ between credit reporting companies, however, they would range between $30-50 per borrower. The credit report fee may increase if additional work is done on the credit report.
The Mortgage Underwriting Fee
The lender charges an underwriting fee. The underwriter evaluates and verifies the mortgage loan applications, and either approves or denies the loan. Generally, a person will become pre-approved for a mortgage, find a house, and sign a contract to buy. The next step is getting through the loan underwriting process. An underwriter’s job is to make sure you have represented yourself and your finances truthfully. They also make sure that you haven’t made any misleading claims on your mortgage application. Part of the underwriting process is reviewing the appraisal to make sure its value matches the size of the loan you are requesting. In addition, your income, the amount of money you currently owe & the future housing payment will be taken into account during the underwriting process. The extent of the underwriting analysis depends on how great a risk you are.
Title services and lender's title insurance fees
You will need lender's title insurance to get a mortgage loan. When you buy a house, you will receive a deed. This document shows that the seller has transferred their legal ownership, or “title,” of the home to you. A lender’s title insurance protects your lender against problems with the title to your property. Title service fees include title search fee, lender’s title insurance, and other services related to issuing the title insurance.
All of your mortgage fees are on the Loan Estimate. This is a document required by law that estimates your closing costs. You may find various others such as an application fee, attorney's fees, document preparation fee, recording fees, notary fees, and delivery fees.
Other costs included on your loan estimate would be the typical costs you have due to home ownership. Typically you will pay annual homeowner's insurance up front. Also, your lender will set up an impound or escrow account to pay your property taxes & homeowners insurance as they become due.
Home buyers base their loan decision on interest rate, number of years the rate is available and type of mortgage. If a lender promotes very low rates, it’s possible they will try to make up the difference through additional fees. Therefore before you plunge ahead, make sure you check the list of the mortgage fees you might have to pay.
And remember that APR is the total of your closing costs expressed as an interest plus your interest rate. For example, if the APR = the interest rate on the loan, then your closing costs = $0