Mortgage fees refer to charges imposed by lenders on borrowers to cover the costs associated with processing the loan. When applying for a mortgage, it is mandatory for the lender to provide a written document called a Good Faith Estimate, which itemizes all the fees involved. These fees are used to compensate various entities responsible for facilitating the home loan, including the lender, appraisers, credit reporting agencies, and inspectors.
While the down payment is the most common closing cost for a mortgage, there are typically several others as well, which can vary depending on individual circumstances. The primary categories of mortgage fees include:
- Mortgage fees: This category encompasses loan origination fees, points, document preparation costs, and underwriting fees.
- Title fees: These fees ensure that there are no conflicts regarding ownership. They include charges for title insurance and settlement.
- Outside vendor fees: Payments in this category cover expenses such as home appraisal fees, credit report charges, and flood determination fees.
- Government fees: This category comprises fees related to mortgage registration, applicable taxes, and title recording.
It is important to note that some lenders may add additional, unnecessary fees, known as junk fees, to increase their profit margin. To avoid being charged for such fees, it is advisable to:
- Compare different lenders and their fee structures.
- Gain a clear understanding of the purpose of each fee.
- Question any fees that seem questionable or excessive.
By following these steps, borrowers can make informed decisions, save money, and avoid unnecessary charges when obtaining a mortgage.