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Mortgage Fees: Sticker Shock Explained

Applying for and closing a mortgage can be a tricky process, made even more so with mortgage fees that can sneak up and surprise you.

What are mortgage fees? While there are usually a few fees associated with applying for a mortgage, the majority of fees pop up at closing. And if you’re unprepared, they can be quite a financial hit as you take ownership of your property. In fact, mortgage fees have been so notoriously surprising that some consumer agencies have been demanding more transparency and explanation.

Typically, closing costs are charged by a third-party for services occurring during the mortgage application and approval process. While the final bill may come from your lender, they do not have much control over these fees. Common mortgage fees include:

APPRAISAL
As part of the mortgage application process, an appraisal is required by a lender to assess the fair market value of the home. Generally, lenders are looking to make sure that the mortgage loan amount is not more than the property’s value. Common appraisal fees range between $225-$450.

CREDIT REPORT
When you apply for a mortgage, lenders are looking for proof that you will be able to pay the loan back. They will review your credit report to examine your borrowing history, and determine if you are an acceptable risk. This fee, which ranges between $15-$30, is assessed by credit reporting agencies like Experian, TransUnion or Equifax.

TITLE FEES
The title company that conducts the closing will charge a general closing fee between $150-$400. In addition, they will do a detailed search of the property records for the home, including prior deeds, court records, and property indexes, to check for problems associated with new ownership. The title company charges a title search/exam fee of $150-$400.

INSURANCE
Certain mortgages may require insurance proof and fees at closing. The first year of general homeowners insurance may be paid at closing, which can vary from $300 and more. In addition, title insurance may be charged. A lender’s policy assures the lender that you own the home (ranges from $175-$875) and an owner’s policy protects you from a challenge to the ownership of your home (ranges from $175-$875).

ATTORNEY FEES
In some states, attorney fees are charged at closing. A buyer’s attorney fee is paid to the attorney preparing and reviewing closing documents on your behalf, and can vary widely depending on your attorney. A lender’s attorney fee is paid for the lender’s document preparation. This can range from $150-$500.

SURVEY
A property survey may be required to document boundary lines for your property. This can range from $150-$400.

MISCELLANEOUS
Other fees can be charged depending on your lender, broker, and property. Biggest among these are origination points due to the lender/broker that may be expressed as a percentage of the loan amount (1 percent, for example).

Knowing what to expect with closing costs can help reduce sticker shock and the stress of paying more than planned. One way to do this is to request a Good Faith Estimate, a document the lender is required to provide that details a close approximation of the fees you will be charged.


For additional reading:

A consumer’s guide to mortgage settlement costs: http://www.federalreserve.gov/pubs/settlement/default.htm

What mortgage fees are tax deductible?
http://budgeting.thenest.com/mortgage-fees-tax-deductible-3352.html

 

 

 

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