Common Mortgage Application Costs and Fees

When applying for a mortgage, the number of different costs and charges can quickly add up. From application fees to home appraisals, it seems like everyone has their hand out. Some of these fees and charges are a normal part of the mortgage process, while others may not be.

It is very important to understand what types of charges are normal when purchasing a home and what types of charges are junk fees. Junk fees are one time fees that are added by the mortgage lender. With the exception of interest and principal fees, most other charges are junk fees. It is important to question these junk fees, as they are often negotiable, but you will not know unless you ask.

Common Mortgage Costs and Junk Fees

Below, you will find a list of some of the common costs associated with a mortgage.

Application Fees: Application fees are also sometimes called processing fees and vary in price, but are usually between $300 and $400. An application fee may be refundable, but it is usually not. It is very important to ask about refunds before paying the application fee. More and more lenders are waiving application fees, but often they tack these fees on somewhere else, after the mortgage is processed, highlighting the importance of questioning all junk fees.

Credit Report Fees: Many lenders will charge the mortgage applicant for the cost of running their credit. The cost of a credit report should not exceed $20 and it is possible to purchase your own and save a few dollars. If a lender tries to tack on a few extra dollars for your credit report, this is a red flag, as most creditors get a bulk discount on credit reports.

Origination Fee: This is a fee charged by the lender to process your mortgage. It is also sometimes called an administration fee or commitment fee. Sometimes the origination fee can be waived, as the lender is making money on the loan and points already. It is important to question this fee and if it is excessive consider using a different lender.

Points: In addition to the origination fee, points are another way that the mortgage lender gets paid. Typically, the points is related to the interest rate, so with a 5% interest rate, they might charge you .05% of the cost of the loan up front. Sometimes the points are negotiable, but the lender could charge you a higher interest rate if you do not want to pay the points.

Prepaid Interest: When you close on your home, you will not be responsible for your first payment right away. Depending on when in the month you close, it could be two months before your first mortgage payment. However, the lender will require that you pay interest between this time, which is the prepaid interest. Make sure to talk with your lender to determine when would be the best time during the month to close, so that you pay the least amount of interest or have the longest time between your first payment.

Lock-In-Fee: Some lenders may charge a fee to guarantee an interest rate while you are looking for a home. This is considered a lock-in-fee and in reality most quality lenders do not charge anything to guarantee an interest rate, however you should get this in writing. If the lender does charge a lock-in-fee, this is a junk fee and if they are unwilling to remove it, this is another red flag that can indicate a less than reputable mortgage lender.

Title Insurance: Like a car, all homes have a title of ownership. When purchasing a new home, a title search is preformed to ensure that no one else has a claim to the property and that there are no liens on the property. Title insurance protects the interest of the bank in case the title search turns up another owner or a lien on the home. The cost can vary, but it usually costs around $200.

Documentation Preparation: This is a junk fee that can often be avoided, because with todays technology, it does not take too much effort to prepare the paperwork for the mortgage.

Underwriting Fee: The underwriters of a loan are the people who take the time to analyze the credit worthiness of the loan applicant. Often, this fee is a junk fee and is not needed. It is a good idea to speak with the lender and have them describe exactly what their underwriters do, as well as questioning the fee.

Property Tax Fee: It is usually necessary to pay the current years property taxes, as well as setting some money aside for next years property taxes, at the time the loan is completed.

Tax Service Fee: Some lenders require that the payments of the property taxes are verified, but this is often a junk fee. It is important to question the lender on this fee, ask them how it is verified, and to see the verification. This tells the lender that you know it is a junk fee and can help you determine if the lender is reputable.

Private Mortgage Insurance(PMI) Fee: Some lenders require private mortgage insurance if less than 20% is put down on the home. PMI partially insures the mortgage and if required, is used until 20% equity is built up in the home. Some lenders require a fee for setting up PMI, but it is a good idea to question this cost. Also, lenders will not usually automatically remove PMI once you have 20% equity, instead waiting for the mortgage owner to question the charge.

Survey Fee: A survey is often done to mark the boundaries of the property. A survey can be a good idea if there are close neighbors or structures on the boundary of the property of questionable ownership. In some cases a survey may be required in order to receive title insurance. Typically a survey is, compared to the other mortgage fees, rather inexpensive and can be a good idea to get an idea of how much land you own. If you decide not to get a survey, you can sometimes see the marking of a previous survey, such as flags on trees or marks on the road, to get an idea of your land’s boundaries.

Appraisal Fee: A home appraisal is used to determine the value of a home, so the mortgage lender can ensure that you are getting a fair deal. The appraiser will evaluate the condition of the home, as well as considering the recent sale price of other similar homes in the area. The cost of an appraisal is usually around $300 and is required when purchasing a new home or refinancing your existing home.

Appraisal Review Fee: This is a junk fee that should raise some warning flags, because it is basically an appraisal of the appraisal. If the lender is so uncertain of the the companies that do their appraisals that they require someone else to review it, you might want to look elsewhere for your loan, as the alternative is that the lender is just trying to fleece you of some extra money.

Courier Fees: Sometimes a lender may charge a fee to transport the mortgage package between the lawyer and mortgage office. However, this fee is often not needed unless it is an out of state transaction or there is a short window of time that the loan must be completed in. It is a good idea to question this fee, as it is often unnecessary.