Home > Mortgages > 6 Fees to Look Out for When Buying a Home

Comments 0 Comments

Let’s cut to the chase. Obtaining a mortgage to buy a home, or to refinance one you already own, is not cheap. No two ways about it, acquiring property is going to cost you some bucks. However, knowing ahead of time what fees lenders charge — including both upfront and later in the transaction — can help ensure you’re getting a fair and competitive loan offer.

Upfront Fees

There are fees you’ll need to pay upfront before the loan transaction commences. This will vary from lender, bank or loan broker, but there are three main fees that lending companies may charge before a loan closes.

1. 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 Home Affordable Refinance Program 2, requires an appraisal (though that may require an appraisal, too). An appraisal will determine the value of the property, and more importantly the loan-to-value, which is a critical factor in determining cost that can’t be known without a valuation. 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.

Expect an appraisal for a primary home transaction to be approximately $400-$500. Investment property transactions typically cost 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 — paid outside of closing — which reflects an accounting credit when you receive mortgage loan disclosures noting that the fee is already paid for.

2. Lock Fee

When a lender locks your mortgage interest rate, they effectively are setting aside whatever your loan amount is at a specific interest rate and cost customized to you. If interest rates rise, the lender loses money. For example, if you are locked at 3.875% on a 30-year fixed rate mortgage, and rates rise to 4.125%, your loan becomes less attractive to the end investor. However, a lock fee helps support the lender’s profitability.

3. Application Fee

By collecting a fee upfront, 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.

Fees Due at Closing 

Mortgage loan fees can be paid for at close whether financed in the loan amount or paid for in cash at escrow closing.

4. Origination Fee

This is the margin the lender earns by taking a loan application, arranging the loan, procuring funds and subsequently closing. This fee varies across the board, but it typically runs more than $1,000. Also included in this amount: 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 for arranging financing for you.

5. Discount Fee

Traditionally, a discount fee is an upfront fee you can pay in order to obtain a lower interest rate that will give you a lower monthly payment. Your credit score, loan type, occupancy, 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 to several thousand dollars, depending on the rate and scenario you have set up with your mortgage provider. Additionally, you can choose negative fee/points, which is also known as a lender credit.

6. Lender Credit

Let’s 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.

For a lender credit, you’ll pay a slightly higher-than-market rate based on your loan and credit scenario – more than you would be if you were paying points, or paying none.

A Word on Loan Disclosures

Keep in mind that a loan disclosure, which shows your total closing figures, is an estimate.

When you’re buying a home, one of the main pieces of information a mortgage provider needs from you is the address of the property you plan to purchase. If you are pre-approved for a mortgage, but have yet to ink a purchase contract, your lender should have given you a pre-approval letter. Only once all parties have signed the purchase contract for 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 are sent 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 once it comes in.

Your credit plays a big part in how much you pay for your mortgage, which affects how much house you can afford, as a better credit score can get you a lower interest rate. Before you start shopping for a home, you can check your credit to see where you stand and to deal with any problems or errors with your credit. You can see your free annual credit reports from each of the major credit reporting agencies through AnnualCreditReport.com. You can also keep an eye out for changes by getting your free credit report summary, updated monthly on Credit.com.

More on Mortgages & Homebuying:

Image: Photodisc

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team