The lender fees you should (and shouldn’t) pay in the mortgage process

Better.com
By Better.com

fees

When you're budgeting to purchase or refinance a home, it's important to consider that all mortgages come with fees. Even if you apply for a mortgage with a lender that has no origination fees or commissions (hint hint: Better Mortgage), there are some associated costs that are an unavoidable part of the process. The question is: Which fees are a necessary part of applying for a mortgage, and which fees are avoidable?

Let's start off with all the fees you're likely to encounter in your mortgage application, so you know exactly what to look out for—and what to avoid—when you get your loan estimate.

Application fee

Just like any profession, loan processors need to be compensated for their time, which some lenders offset by charging their customers an application fee. The amount you pay can range from $0 to $500, and it's almost always a non-refundable charge. Application fees tend to be higher if you're working through a mortgage broker who serves as an intermediary. Meanwhile, some online lenders, such as Better Mortgage, don’t charge application fees at all. Do your research before applying for a loan, especially if you have low credit, as you might lose the fee if you’re denied.

This is an avoidable fee for both homebuyers and refinancers.

Loan origination fee

Loan origination fees are similar to application fees in that they are an upfront charge for doing business with the lender. These fees are supposed to cover the preparation of documents, attorney fees, notary fees, and more. If your loan origination fee isn’t flat, the cost might be between .5% and 1% of the loan amount, or even as high as 2%. Again, it varies between lenders, and some—such as Better Mortgage—don’t charge loan origination fees at all.

This is an avoidable fee for both homebuyers and refinancers.

Underwriting fee

Some lenders charge a loan origination fee for gathering your documents, and then charge another fee for having someone examine those documents to determine if you qualify. This person, the underwriter, has the ultimate say if you are accepted or rejected for a loan. Their role in your lender’s company is to analyze and assume the financial risk you present as a borrower.

Underwriting fees typically cover a range of other costs, including commitment, flood certification, wire transfer, and tax service fees. Some loans, such as FHA mortgages, do not charge underwriting fees.

This is an avoidable fee for both homebuyers and refinancers.

Loan officer commission

Loans officers play an important role in the mortgage process, and many lenders compensate them with 1% of your total loan amount in commission. (You may see where this is going.) Loan officers are, therefore, incentivized to make more money by selling you a higher loan—which isn’t in your best interest. We’d prefer that our loan officers focus on providing you the best value for money, so we found a way to compensate them without B.S. commission fees.

This is an avoidable fee for both homebuyers and refinancers.

Appraisal fee

Before you can acquire a mortgage, a third-party appraiser will need to appraise the home you’re looking to purchase or refinance to assure the lender that you’re not borrowing more than its fair market value. The home inspector will base their appraisal on the home’s structural integrity and living conditions, as well as the price of comparable homes in the area. Your lender then uses this figure to calculate your loan-to-value ratio and decide how much money to lend you.

The appraisal is an important step in the mortgage process, and the fee associated with it is required. Appraisals typically cost around $300–$550 for a single-family home.

This is generally an unavoidable fee for both homebuyers and refinancers, unless you qualify for an appraisal waiver.

Rate lock extension fee

If you’re nervous about interest rates increasing by the time you're able to close on the home you want to purchase, you should ask your lender for a “rate lock.” This will let you secure the current interest for a set period. In most cases, a rate lock gives you more than enough time to close at your desired interest rate. However, if the buying or refinancing process does run beyond your rate lock deadline, you may have to pay a rate lock extension fee—which typically costs .375% of your total loan amount.

This may be an avoidable fee for both homebuyers and refinancers, depending on your situation.

Recording charge

Real estate sales and purchases are public record, so governments (most likely your local county government) charge recording fees to register each transaction. Recording fees vary between areas and the type of property you’re purchasing. According to the Home Buying Institute, the national average for recording fees is $125, but they can creep into the thousands, depending on where you live. Meanwhile, homebuyers in Alaska have the luxury of paying $0 in recording fees and New Yorkers seeking a refinance can avoid the recording tax altogether by opting for a CEMA instead.

This may be an avoidable fee for both homebuyers and refinancers, depending on where you live.

Credit report fee

Credit checks are a routine aspect of any mortgage application to see if you qualify for a loan. You are entitled to 1 free credit report from each of the 3 major credit bureaus every year, but lenders generally won’t accept a report that you acquired yourself. Instead, they’ll perform their own analysis of your credit history, and it’s likely that you’ll have to pay up to $100 for the service. This kind of check is known as a “hard pull,” which may affect your credit score.

This is an unavoidable fee for both homebuyers and refinancers.

Flood certification fee

Depending on where you’re buying, it may seem like a given, but flood certification fees are needed to verify that your home is not in an area prone to flooding—which is why every homebuyer must pay this fee. The money goes toward hiring a third party to examine government flood zone maps to discern your property’s risk level for flooding. If your property is within a flood zone, then you will be required to pay flood insurance, which you should factor into your monthly mortgage payments.

This is an unavoidable fee for both homebuyers and refinancers.

Homeowners association (HOA) certification fee

Some condominiums, co-ops, and communities have HOAs, which may contribute to the fees associated with your mortgage. HOAs use these fees to pay for things like building upkeep, common area maintenance, fences, and more. Joining an HOA may be a requirement for your building or neighborhood, so be prepared to pay a one-time HOA certification fee, along with your monthly HOA dues. These costs will vary based on the size and location of your HOA.

This fee may apply to homebuyers, depending on the property.

Title fee

In mortgage speak, the word “title” refers to your legal right to a property, and “title fees” refer to the costs of issuing title insurance policies for you, the seller, and your lender. Title insurance is a requirement in any real estate transaction—including a mortgage refinance—to protect you from title claims against the property—e.g. if someone else claims that they should be the rightful owner instead of you. You can expect this fee to be part of your closing fees.

This is an unavoidable fee for both homebuyers and refinancers.

Subordination fee

A “lien” is another term you may encounter in the mortgage process, referring to a legal claim that a lender has to repossess property if a loan is not paid off. If you have a mortgage, then your home itself is a lien for your mortgage lender. However, you may have secondary liens on your property as well—for example, if you owe money to contractors for work on your home. In instances when you have multiple liens on your home, you must pay off the first lien before you can pay off others.

This hierarchy is risky for subsequent lenders, because the money they loan you doesn’t take precedence. However, secondary lenders can have you subordinate primary liens. Subordinations are, essentially, a way for a lender to ensure that their lien takes priority over any other liens a customer may have on their property. This process costs money, which is what you pay for in a subordination fee.

This fee may apply to a mortgage refinance, depending on your circumstances.

What it all adds up to...

The mortgage process involves plenty of fees. Some exist for good reason, but others are only there to make lenders and other parties more money. Many fees are negotiable, so talk with your lender to see if you can spare yourself excess costs.

At Better Mortgage, we don’t charge many of the fees above—such as origination or loan officer commission fees. When you work with us, we provide you with a loan estimate that includes a breakdown of all of your fees within 3 days of submitting an application to make sure you have the transparency you need when making a decision.

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