Everything You Should Know About Mortgage Fees

By: Peter Kenny

Mortgage fees can add up quickly. Consumers who are thinking of buying a home should know about the various fees upfront and be able to pay them if needed. This will help prevent delays in the closing.

Here are some of the more common fees that you might run into.

Processing Fee: This is the fee the mortgage lender charges in order to cover the initial costs for processing the loan. It might include the application fee and other fees for accessing your credit report.

Origination Fee: Some lenders may charge an origination fee. This fee is used to pay for any additional work the lender has to do while preparing your mortgage. The fee may be a flat fee or a percentage of the mortgage.

Discount Points: If you buy discount points you are buying "down" the interest rate you will be paying on the mortgage. One discount point is equal to 1 percent of the loan amount. These points are paid either when the loan is approved or at closing. Buying points can result in big savings in interest payments over the life of the loan. Some lenders will let you add the cost of the points to your mortgage, or you may have the option of paying for them upfront in cash.

Appraisal Fee: An appraisal compares the value of the property you want to buy to similar properties in the same neighborhood. Appraisals are done by independent appraisers.

Document Preparation Fee: This fee pays for the preparation of the documents that are a part of buying a home. It is usually a flat rate, but can also be charged as a percentage of the loan amount -- usually less than 1 percent.

Inspection Fees: Your lender will probably require that the home be inspected to make sure it is both structurally sound and not being invaded by termites or other destroying insects.

Homeowner's and Hazard Insurance Fees: You must have these insurance policies in place as well as the first year's premium prepaid at the time of the closing. This insurance protects both you and the lender should the home be destroyed.

Lawyer Fees: Both you and your lender will have attorney fees that you will typically have to pay. This fee covers costs for the attorney to draw up the documents and assure that everything is set up as it should be.

Private Mortgage Insurance (PMI): If your down payment is less than 20 percent of the value of the house, you may be required to buy mortgage insurance. This protects the lender in case you fail to make your payments.

Deed Recording Fees: This pays for the county clerk to record the deed and mortgage as well as change the billing information for property taxes.

Title Search Fees: Title searches ensure that the person saying they own the property really does own the property. A title company will examine public records and make a decision as to who rightfully owns the property.

Closing Taxes: You may be required to pay property taxes at closing. This might be anywhere from three to eight months, but this varies by state.

These are some of the costs consumers can expect to see when buying a home. Your mortgage lender can give you more details.

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