In basic terms, mortgage fees are defined as charges by
lenders for processing a mortgage loan, but these fees can
be confusing to people since there are so many of them.
So, it's important for both real estate investors and their
customers to understand these charges so you know the real
cost of loans and to make sure all charges are legitimate.
Armed with this knowledge, you can get the best mortgage
deal for yourself and for your customers and ensure that
you're not being overcharged.
As I explain mortgage fees, keep in mind that lenders have
varying requirements so you may not have to incur the cost
of every one of these charges.
Application Fee
This is the simply the cost of processing the loan. It's
normally paid to the lender when you apply. It's usually
non-refundable if you decide not to take the loan.
Appraisal Fees
This is an estimate of the market value of the property.
The lender has the appraisal done to make sure the mortgage
has a level of risk that's acceptable to them. It's usually
done by a professional appraiser, who provides a written
appraisal to the lender.
Attorney Fees
Sometimes, an attorney is required to prepare and review
loan documents, so an additional fee is paid for document
preparation.
Credit Report Fee
This is a charge for having a credit report pulled by the
lender. Naturally, the lender wants to know the borrower's
creditworthiness so that lender will get the information
from one of the "Big Three" credit reporting
agencies—Equifax, Experian, or TransUnion.
Document Preparation Fees
These are fees charged for the preparation of legal
documents such as deeds of trust, the mortgage contract,
etc. The fees may charged by the lender, broker, or the
title company.
Earnest Money
This is money the buyer pays into an escrow account to show
good faith to the seller; in other words, it demonstrates
that they're serious about buying the property and are
putting their money where their mouth is. It's usually a
small amount of money and is paid by the buyer when an
offer is made on the property.
Escrow Account Funds
The lender holds money in the escrow account for the
purpose of paying of specific items. These items can
include up to two months worth of private mortgage
insurance, homeowner's insurance, hazard insurance,
property tax payments, etc.
Loan Discount Points
These are fees that lenders charge in order to provide a
lower interest rate. As a borrower, you can choose to get a
lower interest rate ("buy down") by paying "points" in
addition to the loan origination fee. Each point is equal
to one percent of the value of the loan, and one point
typically represents about one eighth of a percentage point.
Loan Origination Fee
This is a fee charged by the lender to cover administration
costs; i.e., preparation, evaluation and submission of the
loan. The fee is usually equal to 1% of the value of the
loan. Origination fees may be as high as 2% if the loan is
especially complicated. As a general rule, expect to pay no
more than approximately 1%. Mortgage Broker Fee In some
situations, you may prefer to work with a mortgage broker
rather than directly with a lender. In that case, you'll
pay the broker a fee for his or her services in addition to
the lender's fee.
Mortgage Underwriting Fee
Lenders charge this fee for verifying the information on
the loan application and making a final decision on loan
approval. It also covers closing and funding costs for the
lender. Typically, this is where the lender makes their
immediate profit from lending (as opposed to profit over
time from interest). Note: Brokers shouldn't charge an
underwriting fee; they're not the ones underwriting a loan.
Prepaid Interest
This is the amount of interest that accrues between closing
time and the date of the first mortgage payment. This fee
is paid to the lender at closing time. Recommendation: To
reduce the amount of prepaid interest, try to close at the
end of the month. This will also reduce the amount of cash
you need to come up with at closing time. Property
Inspection Fee This is a fee charged by a licensed property
inspector for determining the general physical condition of
the property as well as pest inspection. Property
inspections protect both the buyer and the lender.
Survey Fee
This is a fee charged by a licensed surveyor for
measurement of a property's boundaries. The lender or title
search company may require a survey in order to ensure that
the boundaries have been upheld.
Title Insurance
This is vital protection for the buyer in case there are
any unpaid mortgages or tax liens on the property that were
overlooked during the title search. If title issues crop
up, then title insurance pays for legal costs and
reimburses the buyer for any other losses incurred.
Title Search Fee
A title search is vital because, as a buyer, you want to
make sure the person selling the property is the legal
owner. The title company analyzes all public records
concerning the property in order to determine if any title
defects could interfere with clear transfer of property
ownership.
Summary
In this article, I covered the topic of mortgage fees. As I
said earlier, it pays to understand these fees to make sure
both investors and their customers get the best deal on a
mortgage and to ensure that they're not being overcharged.
A good online source for getting a handle on mortgage fees
charged across the nation is http://www.bankrate.com. This
site will give you the highest, lowest, and average fees
charged by lenders and brokers. I recommend you consult it
on a regular basis to stay on top of the mortgage game.
Remember: As always, knowledge is power!
Jack Sternberg
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Jack Sternberg is a nationally recognized expert on real
estate investment who's been in the business for more than
30 years. Sternberg is the creator of the renowned "Buyers
First" Program. His deals have totaled over $750 million
and he's been to the closing table more than 1,500 times.
For more, visit http://www.askjacksternberg.com
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