I went to my lender and had a Pre-Approval of a loan to purchase a home. I made an offer on a home and it was accepted and now I am going to my lender & have them start my loan but he said something about mortgage loan fees I did not know. I needed to pay those other fees as well. What are they and how much do they cost?
Application fee: This covers the cost of processing your request for a new loan and includes costs such as credit checks and administrative expenses. The application fee varies depending on the lender and the amount of work it takes to process your loan application.
Assumption fee: If you take over (“assume”) the remaining balance of the seller’s mortgage, you may be charged a variable fee based on the balance.
Attorney’s fees: A number of states require an attorney to be present at the closing of a real estate purchase. Depending on how many hours the attorney works your case, the fee can vary dramatically.
Prepaid interest: Most lenders require buyers to pay the interest that accrues on the mortgage between the date of settlement and the first monthly payment due date, so be prepared to pay that amount at closing; it will depend on your loan size.
Loan origination fee: This is a big one. It’s also known as an underwriting fee, administrative fee or processing fee. The loan origination fee is a charge by the lender for evaluating and preparing your mortgage loan. This can cover document preparation, notary fees, and the lender’s attorney fees. Expect to pay about 1% of the amount you’re borrowing (a $300,000 loan, for example, would result in a loan origination fee of $3,000).
Points: By paying points, you reduce the interest rate you pay over the life of your loan, which results in more competitive mortgage rates. One point equals 1% of the loan amount. So if the loan were $500,000, a 1-point payment would be $5,000. Generally, paying points is worthwhile only if you plan to stay in the home for a long time. Otherwise, the upfront cost isn’t worth it (check for yourself with our calculator here).
Mortgage broker fee: If you work with a mortgage broker to find a loan, the broker will usually charge a commission as a percentage of the loan amount. The commission averages from 1% to 2% of the home’s purchase price.
Mortgage insurance application fee: If you put less than 20% down, you may have to get private mortgage insurance. (PMI insures the lender in case you default; it doesn’t insure the home.) The application fee varies by lender.
Upfront mortgage insurance: Some lenders require borrowers to pay the first year’s mortgage insurance premium upfront, while others ask for a lump-sum payment that covers the life of the loan. Expect to pay from 0.55% to 2.25% of the purchase price for mortgage insurance, according to Genworth and the Urban Institute.
FHA, VA and USDA fees: If your loan is insured by the Federal Housing Administration, you’ll have to pay FHA mortgage insurance premiums; if it’s insured by the Department of Veterans Affairs or the U.S. Department of Agriculture, you’ll pay guarantee fees. FHA insurance premiums are about 1.75% of the loan amount, while USDA loan guarantee fees are 2%. VA loan guarantee fees range from 1.25% to 3.3% of the loan amount, depending on the size of your down payment.
Property taxes and insurance
Annual assessments: If your condo or homeowner’s association requires an annual fee, you might have to pay it upfront in one lump sum.
Homeowner’s insurance premium: Usually, your lender requires that you purchase homeowner’s insurance before settlement, which covers the property in case of vandalism, damage and so on. Some condo associations include insurance in the monthly condo fee. The amount varies depending on where you live, your home’s value, and whether it’s in a potential disaster area (such as a floodplain or earthquake zone).
Property taxes: Buyers typically pay two months’ worth of city and county property taxes at closing.
Title search fee: A title search is conducted to ensure that the person selling the house actually owns it and that there are no outstanding claims or liens against the property. This can be fairly labor-intensive, especially if the real estate records aren’t computerized. Title search fees are about $200. but can vary among title companies by region.
Lender’s title insurance: Most lenders require what’s called a loan policy; it protects them in case there’s an error in the title search and someone makes a claim of ownership on the property after it’s sold.
Owner’s title insurance: You should also consider purchasing title insurance to protect yourself in case title problems or claims are made on your home after closing.
To learn more about Mortgage Loan Fees call or text: Susan Compagner 616.836.2603 or email: SusanCompager@gmail.com.