Understanding lender fees
When buying a home, finding the right house and making an offer are just the beginning. Once your bid is accepted, the real fun begins – deciding on a mortgage provider. Finding the right lender can be a confusing process, especially if you don’t know the ropes. You not only have to consider your interest rate, but also lender fees, which can add up fast. Here is a list of possible fees to pay attention to when you are shopping for a mortgage provider:
Appraisal fee: Typically, the lender will require an appraisal to determine the value of a home and calculate the loan amount as a percentage of the property value or loan-to-value ratio – one of the factors used by lenders to approve your mortgage application.
Credit report fee: In order to obtain a loan, lenders want to know your credit record and history. As a result, a credit report is routinely pulled by the lender and paid for by the home buyer. The fee itself is paid to the credit reporting agency.
Flood certification fee: Lenders want to ensure that the property you are purchasing will not be threatened by natural hazards. This fee is used to determine if the home being purchased is located in a flood plain or not – if it is, expect to pay flood insurance as well.
Tax service fee: As part of their responsibility as lenders, mortgage providers hire a tax service agency to monitor the payment of your property taxes, for which they charge a service fee. The lender needs to know that the property taxes are being paid in full and on time to avoid a tax lien.
Underwriting fee: Underwriting fees are those associated with an underwriter reviewing your application and determining if the lender is willing to provide you with a loan and under what terms. The lender will review a number of factors including your assets and liabilities, income, credit history and property appraisal.
Origination fee: Some lenders charge an origination fee for the services they provide, particularly if the loan is one that may require more work such as a subprime mortgage. You may be able to dodge this fee; however, watch out that you don’t end up paying elsewhere, such as with a higher mortgage rate.
Processing fee: A processing fee is simply that – a fee to cover the cost of processing your mortgage application. This fee can sometimes be negotiated.
Commitment fee: A lender can charge a borrower a commitment fee to keep a line of credit open, or to guarantee a loan for a future date. Often, borrowers can avoid paying this fee.
Application fee: Application fees are often paid to cover other costs noted above such as appraisal, processing and underwriting fees. Some companies charge this fee to ensure that the borrower doesn’t go elsewhere. Of course, in a situation where these charges have already been paid, an application fee should be waved.
Discount points: A common way to reduce your interest rate is to pay discount points to your lender. Known as both origination and discount points, they are a one-time fee charged by the lender. Points are expressed as a percentage of the loan amount with one point equal to one percent, usually ranging in increments of .125 percent.
Loan lock fee: A loan lock fee is one charged to ensure that you get a certain rate and that it does not go up. Many brokers do not charge this fee, so shopping around to avoid it could save you some money.
Broker fee: A broker may charge you a fee for arranging your mortgage financing and any services provided, with the idea that as a broker they will find you the best rate possible. Generally if a lender charges a broker fee, they will not charge an origination fee.
Inspection fees: Many states require a home inspection and possibly a pest inspection of the property. Both inspections most be conducted by licensed professionals and serve not only as a safety measure for the lender, but also the borrower, in making sure that the home is structurally sound.
Lawyer fees: You may also have to pay an attorney to process and review your loan documentation.
Miscellaneous administrative fees: There are a variety of administrative fees charged by the lender to cover some of their expenses, such as courier costs for sending documents to various parties, wire transfer fees to wire funds dealing with your closings and document preparation fees for drafting and preparing your loan documents.
Finding the right mortgage lender takes time and energy, however, in the long run, a little extra work will probably pay off. Pay close attention to the different lender fees and be sure to ask for a good faith estimate of the approximate costs that you can expect at closing. You – and your wallet – will be happy you did.
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