First remember that mortgage loan fees can vary from institution to institution, and shortly after your application, you should be given a quote for your closing costs for the mortgage loan. The mortgage loan costs can include a variety of services and required steps in the mortgage loan process. Here is a quick breakdown of the possible mortgage loan fees so you can understand the charges.
An appraisal is required for the property so the lender will know how much the home is worth. They will not loan more than they know the home is worth, since the home itself is held as collateral against the mortgage loan. You will be required to pay for the appraisal service, and the costs for the appraisal will vary, depending on the type of property (a single-family dwelling, a duplex, a townhouse, etc).
You will also be responsible for paying for the underwriting process of a mortgage loan. This is the process the lender goes through to decide whether or not to make the mortgage loan. The lender balances several factors, including credit history, employment and assets, against the rate, term, and risk to the institution.
The lender may add on to your mortgage loan closing costs for their internal processing, administrative, and document preparation fees. Some institutions offer flat rates or may not charge at all. Ask for their internal charges when you fill out your application.
As you know, a credit check is required when you apply for a mortgage loan. A credit report will show your payment history for past loans, both secured and unsecured. It can also show if you have defaulted on any payments, have declared bankruptcy or have had any debts charged off. If your credit is spotty, it is up to the lender to balance the risk of lending to you with the payoff to decide if they want to offer you a mortgage loan. These days, it is not as hard as it used to be to get a mortgage loan if you do not have the best credit. But remember, the easiest way to continue to get approved for loans is to pay bills on time.
With most lenders, you will be required to pay an escrow fee on your mortgage loan. You will put your money into an escrow account and it will be held there as advance payments toward insurance, property taxes and other fees until they are due.
Another fee you may see on your mortgage loan is title insurance. This is the way both the buyer and the seller are assured the property has a clear chain of title and the person selling the property to you has the legal right to do so.
Notary fees are usually wrapped up in the overall closing costs on your mortgage loan, as most lenders have in-house notaries, but some may add the charge. Any attorney costs for working on documents could also be added into your mortgage loan fees.
You may choose to pay “points” to lower your interest rate. A point is usually equal to about 1 percent of your mortgage loan. If you pay these points, you can lower your interest rate, which will save you money in the long run.
When you close your mortgage loan, you need to have your homeowner's insurance up to date. This is a necessary cost. Also, if you live in a “hazard zone,” for example, if you live in a flood plane or in an earthquake zone, you will also need to have flood insurance or earthquake coverage.
Finally, the joy of property taxes. Before you can close your mortgage loan, all property taxes must be up to date. Here is where the help of your escrow account, your mortgage loan officer and well-kept records come in. Most property taxes are paid bi-annually (from escrow), and if you are buying during the window of time when taxes are due, and you do not pay from escrow, you could end up having to pay twice. Taxes paid out of escrow take longer to post and your property taxes may show up delinquent; the county may request you pay again. Hence, during the closing process, it is priceless to have the help of those who are “in the know.”
D. Blair Thompson