Financially Sound: What Is Involved In Mortgage Fees?

Nobody really likes paying fees, but it’s even less enjoyable when you don’t know exactly what you’re paying for. This is especially true when buying a home. Many people aren’t sure what’s involved in the fees associated with their mortgage.

by Tammy Hawks

April 27, 2007

T he key is to learn a little bit before you close on the home. With just a little research and the willingness to ask your mortgage consultant for help in defining terms, you’ll know just what you’re being charged for and will leave the closing table assured the fees were fair and accurate.

Most closing costs are fees paid to the lender or to various service providers in helping you purchase your new home. More often, the buyer is responsible for covering the fees, but they can also be paid by the seller. This is usually negotiated at the time of the sale. It’s important to realize that some, but not all, mortgage fees are standard in this process. Following are some of the fees that you’ll normally find at closing.

Mortgage Origination Fee
This is what your lender charges to find the loan and process it. It’s his or her service charge for doing what he or she does best: Find the loan that best suits your financial situation. It generally is 1 percent of the loan amount. For example, if your home costs $300,000, and the origination fee is 1 percent, you would pay a fee of $3,000.

Rate Adjustment
If you are trying to lower your overall interest rate and have lower payments during the course of the loan, you can accomplish this by adding discount points upfront. For example, by paying discount points as an upfront lump sum, you could reduce your rate from 6 percent to 5.75 percent. Your mortgage consultant can help you decide if this is a good option for your specific case.

Mortgage Underwriting Fee
Lenders may charge a flat rate no matter how much you are borrowing. Sometimes it’s called a commitment fee or an administrative fee. Regardless, it is a payment to the lender for funding, underwriting and closing your loan. Underwriting is a thorough credit analysis that takes into consideration your entire financial history drawn from employment records, financial statements and wage history. Every home loan requires an assessment of the borrower’s overall credit worthiness.

Some lenders group their services under one underwriting fee. Others will itemize them with individual fees. If itemized, they can include fees for the mortgage application, to process the mortgage, to check for any fraudulent information, and even for flood certification to confirm the home is not in a flood zone.

Appraisal Fees
Every time a house is purchased or refinanced, the lender must know the market value of that property. The appraisal fee is usually between $300 and $500, and is set by the appraiser. Be sure to keep a copy of the appraisal for your records.

Title Search and Title Insurance Fees
Lenders will work with a title company that will check and verify the public title records for the home you are about to purchase. The title insurance protects the lender from loss due to any inconsistencies such as unpaid taxes that may surface in the public record, while owner’s title insurance will protect your interests.

Survey Fee
The title company or lender may want to survey your property to verify the official boundaries or check for any property infractions, which could include a building encroaching on your land.

If you don’t understand the fees, ask your mortgage consultant for definitions. By law, you have the right to have fees explained if you ask. Knowing what you’re being charged for helps prevent you from paying too much. A lender is required to provide you with a Good Faith Estimate, a document which estimates as accurately as possible the lender’s fee and other fees related to the closing.

Also, ask to see all the final costs days before you come to closing. The settlement agent is required to provide the settlement statement, also called the HUD-1 or HUD-1A, for your review at least one business day prior to the scheduled closing date. Study these, and be prepared to inquire if you have any questions. The last thing you or your lender wants is a surprise at the closing table

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Tammy Hawks is an Atlanta regional manager and vice president for Market Street Mortgage.