Let’s cut to the chase obtaining a mortgage to buy a home or refinance one you already own is not cheap. There’s no two ways about it. Encumbering property is going to cost some bucks. Knowing the fees lenders charge including both upfront and later on in the transaction can help ensure you’re getting a fair and competitive loan offer.
Upfront Fees
These are the things that you need to pay for upfront before loan transaction has actually consummated. This will vary from lender, bank or loan broker, but there are three main fees that lending companies may charge before a loan has closed.
Appraisal Fee
This fee is probably the most common upfront cost across the board whether you’re working with a mortgage lender, broker, bank or credit union. Nearly every single loan product these days other than the Harp 2 to requires an appraisal, even Harp 2 may require an appraisal ass well. An appraisal will determine the value of the property, and more importantly the loan to value which is a significant driver of risk i.e. cost that is unknown without an valuation in hand. Additionally, the lender requires the appraisal to be paid upfront because if the loan does not move forward, the appraiser still needs to be compensated and the lender otherwise is on the hook. Expect an appraisal for a primary home transaction to be approximately $400-$500. Investment property transactions typically costs an extra $200 – $300 because the appraiser has to create an additional operating income statement and rental market analysis for the property. This fee is called POC represents ‘paid outside of closing’ which reflects an accounting credit when you receive mortgage loan disclosures-identifying fee is already paid for.
Lock Fee
When a lender locks your mortgage interest rate, they effectively are setting aside several hundred thousand dollars or whatever your loan amount is at a specific interest rate and cost customized to you. If interest rates rise, lender loses money. For example if you are locked at 3.875 on 30 year fixed and rates rise to 4.125, your loan is not as attractive to the end investor as 4.125% is lending to someone else. A lock fee helps support the lender’s profitability.
Application Fee
By collecting a fee up front, the mortgage company can then take this application fee and pay the appraiser. It’s quite common that some mortgage providers might call an application fee and appraisal fee the same thing ,with the same exact meaning that the appraiser needs to get paid and shouldn’t have to wait until close of escrow for services rendered.
Mortgage Loan Fees Due At Closing
These can be paid for at close whether financed in the loan amount or paid for in cash at escrow closing.
Origination Fee this is margin the lender earns by taking a loan application, arranging the loan, procuring funds and subsequently closing. This fee varies across the board, lender fees range north of $1,000 typically. Also included in this fee is any processing fee, underwriting fee or lender fee. If working with a mortgage broker, the origination fee, is also any percentage of compensation you agree to pay to that mortgage professional in arranging financing for you.
Discount Fee
Whichever interest rate you choose on whatever day you lock-in rate may contain a cost/fee associated with that rate which your loan disclosures will reflect. Traditionally, a discount fee is upfront overhead you choose to pay in order to generate a lower rate of interest subsequently, for the benefit of a lower monthly payment.If there is a certain rate of interest you have in mind you need to have in order to justify your mortgage transaction understand your credit score, loan program, occupancy, and down payment/equity and loan size could all affect your rate and any discount fee/points. Discount Fees can be anywhere from as little as one dollar all the way to several thousand dollars depending on the rate and scenario you have set up with your mortgage provider. Additionally, any discount fees can also be a negative.
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Lender Credit- Lets say based on the day you choose to lock in your interest rate there is no cost with that particular interest rate, but actually a credit amount. This credit amount is a direct credit in real dollars toward your closing costs reducing your fees when refinancing or reducing your cash to close when purchasing a home.
Mortgage tip: a lender credit based on whatever interest rate you choose means you are going to be paying slightly more than a market rate in exchange for that lender credit based on your financial picture details identified above. In other words if you are willing to pay discount points or have no discount points associated with your mortgage transaction at say o points, your interest rate and associated monthly mortgage payment would also be lower .
A Word On Loan Disclosures
*Loan disclosures showing total closing figures no matter what your loan purposes is an estimate.*
When Buying A Home: one of the main pieces of criteria a mortgage provider needs is a property address. If you are pre-approved for a mortgage, but have yet to ink a purchase contract, your lender should have provided you a preapproval letter, nothing more is required. A good mortgage loan officer will also provide a detailed comprehensive spreadsheet of the total numbers in addition to providing the preapproval letter. Only when you have signed by all parties purchase contract to to purchase a home with an identified property is the lender required to send you loan disclosures within three days of ‘creating an application.’
When Refinancing: an address, as well as, job, income, and loan amount numbers can be estimated at this time and loan disclosures go out within the three-day window. A word to the wise ….initial loan disclosures during a proposed refinance are subject to change as is the interest rate and any associated discount costs based on the appraised value. This is critically important to understand and remember-loan fees can when the value of the house is made known.
We when over the fees the lender charges as illustration points in this article as there is more variance in mortgage loan fees and rates then there is working with title and escrow companies. Title and escrow companies should also be very closely observed and examined when determining which which housing costs type is more suitable to your situation.
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