A Brief Explanation of Mortgage Fees

Monday, November 23, 2009

In addition to the loan itself, a typical mortgage loan has a number of fees associated with the origination of the loan, as well as additional ongoing costs. Some of these are payable in advance, and others must be paid when the borrower closes on the property. In general, these costs typically total 3-5% percent of the value of the property being purchased.

Most fees associated with a mortgage come in two ways: fees associated with getting the mortgage (i.e., title insurance, credit checks, and loan origination fees), and fees paid to local or state government (i.e., prepaid taxes and document recording fees). When you apply for a loan, a lender is required by law to provide you with a Good Faith Estimate within three days of receiving your application. Your Good Faith Estimate will express all of your closing costs in detail.

The following is a break-down of some of the popular fees associated with a conventional mortgage.
Administration Fees: These are fees paid to the lender, and can include document delivery fees, notary fees, processing fees, and preparation fees. You can possibly reduce your mortgage costs by negotiating these fees with your lender.
Application Fee: The application fee is the cost of processing the loan. This one time fee is required to be paid directly to the lender when applying and is non-refundable in the event that you decide to not take the loan.
Appraisal Fees: Lenders require mortgaged properties to be appraised to determine the market value of the property and further assess the level of risk.
Attorney Fees: If you have an attorney prepare and review your loan documents (which is a very good idea), then you will have to additional pay for document preparation.
Credit Report Fee: The fee charged by the lender for having to obtain your credit report.
Document Preparation Fees: Fees charged by a lender for the preparation of legal documents such as the mortgage contract and deed of trust.
Earnest Money: This small cash fee is paid to the seller when an offer is made on the property as a show of good faith.
Escrow Account Funds: Includes up to two months worth of private mortgage insurance (if applicable), homeowner’s insurance, hazard insurance, and property taxes payments, with the money typically held in an escrow account.
Loan Discount Points: Lenders typically give borrowers the option to ‘buy down’ their interest rate via “points”. A point is equal to one percent of the value of the loan, so for a home mortgage loan of $200,000, a point would cost you around $2,000.

posted by Rechard Brown on 12:34 PM