Understanding Mortgage Fees
Everyone knows there are costs associated with getting a mortgage loan. Here is a breakdown of what some of those fees are for. The big question on everyone’s mind when it comes to refinancing is: When should I refinance my mortgage?
One of the largest costs is the loan origination fee charged by mortgage lenders and brokers. The origination fee is the consideration mortgage professionals earn for helping borrowers locate a mortgage and acting as an advocate during the loan origination process. There is no national or local standard loan origination fee and the fee can vary based on the rate of interest — lower rates correspond to higher fees and higher rates correspond to lower fees.
There are several other fees charged by lenders and mortgage brokers that do not amount to much individually, but combined can total hundreds of dollars. These charges, also known as “garbage/junk fees,” are over and above the normal fees charged for appraisals, credit reports, title, and escrow services. It is important to understand the basis for garbage fees, because they vary significantly between lenders and are often used by lenders and mortgage brokers as a way to increase revenues and supplement low origination fees.
Some of the more common garbage fees are:
Document Preparation Fee
These fees are charged by lenders and some brokers for preparing the legal and miscellaneous documents required at closing. These documents include the mortgage note, deed of trust, Truth in Lending forms, escrow instructions, and various forms required by lenders. Sometimes lenders use an outside vendor to prepare the closing documents and pass on the cost to the borrowers.
Loan Underwriting Fee
Lenders may use subcontractors to perform the loan underwriting task. In order to offset these costs, lenders may charge borrowers an underwriting fee.
Loan Processing Fee
Loan officers and their loan processors work with borrowers to obtain the necessary documentation and information required by lenders. Documentation includes appraisal, credit report, employment and depository information, and any other information that may be required by a lender’s underwriting department. Many times, loan originators will pass on these direct costs to the borrowers in the form of a loan processing fee.
Tax Service Fee
Most lenders use an outside service to confirm the property taxes are current. This fee is about $70 and is usually passed on to the borrower at closing.
Flood Certificate Fee
Federal Regulations require lenders to have flood insurance if the mortgage loan issued to a borrower is secured on a property located in a flood-prone area. Many times lenders use an outside service to research the flood maps and certify whether the property is in a flood area. The fee for this service is around $40 and lenders generally pass the cost on to borrowers at loan closing.
Before the mortgage deed of trust can be recorded at the local courthouse, the signature of the borrowers must be notarized. An individual certified as a Notary Public witnesses the signature on recordable documents as true and correct and charge a fee from $10 to $40. Generally, lenders collect this fee from borrowers.
Wire Transfer Fee
Mortgage lenders generally wire the funds to the escrow company handling the loan closing. Funds are wired through the Federal Reserve System and done through commercial banks that are members of the Federal Reserve Bank. Usually, banks charge mortgage lenders a fee for the wire transfer service. This fee can be between $25 and $100 and is generally passed on to the borrower at closing.
Warehouse Differential Fee
This fee has not been seen for many years because short-term interest rates have been lower than the actual mortgage note rate. If and when short-term interest rates rise, mortgage lenders may have a negative carrying cost from funds borrowed from commercial banks during the time the mortgage is funded until the loan is sold in the secondary market. This negative cost is sometimes offset by charging borrowers a Warehouse Differential Fee that is paid at closing.
Lenders are required to disclose garbage fees in the Good Faith Estimate of Loan Closing Costs and are a component of the annual percentage rate (APR). Borrowers must receive the Good Faith Estimate within three days of submitting the application to the lender. Further disclosure of the costs is provided at the time the loan is funded.
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