Mortgage Fees: What’s Legit and What Isn’t
If you’ve ever applied for a mortgage, you’re almost certainly familiar with a “Good Faith Estimate,” which gives you a rundown of costs associated with your mortgage. According to a recent sidebar in Money Magazine, the average costs associated with a $200,000 mortgage (excluding taxes, prepaid interest, and insurance) are $3,024 (roughly 1.5% of the loan). If you’re being asked to pay much more than that, then alarm bells should be going off in your head.
So what fees should you target when talking your mortgage broker down? Here’s a rundown of types of fees as well as average costs for each:
Just say no to the following fees…
Commitment (rate lock): $371
Application: $250
Negotiate these fees…
Origination: $779
Processing: $386
Document preparation: $291
Title work: $196
These fees are legit…
Title insurance: $663
Closing attorney: $362
Appraisal: $343
Underwriting: $201
Pest or other inspections: $60
Credit report: $22
Flood certification: $14
So… The next time you apply for a mortgage, be sure to take a close look at the Good Faith Estimate and make sure there aren’t any outlandish fees.
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Good points, but I don’t agree on the rate lock fee. I’ve helped several people with mortgages and the 2 brokers with the best combination of rates and fees had this rate lock fee. it was 1/2% of the mortgage ammount.
But, this then got applied to the closing costs. So, its more of a deposite than anything else.
Standard home inspection + radon inspection (if appicable), can be 400$ or so, but well worth it.
Also, considder paying “points”, origination fees, and broker fees. They are all really the same fee. So, just calculate it as if they were points.
Comment by broknowrchlatr — Aug 22nd 2007 @ 8:13 amActually, points and origination fees aren’t the same. I believe they’re treated differently when it comes to tax deductibility. Points are deductible (because you’re pre-paying interest), but origination fees are not. Or am I mistaken?
As for your rate lock example, that’s not a fee. That’s a deposit. Different thing. If you get the money back, it’s not a true “cost.”
Great post. Great timing too. I’m a first time homebuyer looking right now. Great information.
Comment by Matt Wolfe — Aug 22nd 2007 @ 1:29 pmI remember seeing this list somewhere else before, and I still have issues with everything under the “Negotiate these fees” section.
I would like to see an article describing exactly why the bank has to charge what they do for that section. For instance, what cost is the bank incurring that it has to charge you $779 for origination fees?
Comment by Brian — Aug 22nd 2007 @ 5:59 pmBanks and mortgage brokers do, in fact, incur costs associated with personnel and other infrastructure. They have to pay salaries and keep the lights on. Thus, it’s not unreasonable for the to expect to collect some fees. That being said, I’ve never paid an origination fee.
Since these are estimates, when we do actually negotiate on these fees? Couldn’t they put down a different number at the end when it counts and just say that the beginning negotiated fee was just an estimate?
Comment by MoneyNing — Aug 22nd 2007 @ 6:09 pmThey should be able to put things that are under their control (e.g., origination, processing, loan prep, etc.) in writing. Certain other costs are potentially out of their control (e.g., pest inspection, appraisal, closing attorney) so they can’t do much more than estimate them as accurately as possible.
Wonderful info! I’m looking at purchasing my first home and this came in handy.
Comment by Tom — Aug 22nd 2007 @ 7:04 pmI certainly understand that they have to pay the bills, but, if it is a separate line item then I think it should be explained. If someone that is processing the loan makes $20/hr and the overhead is another $20/hr, then the origination fee itself is nearly equal to 20 hours of work. (if my math is right) I don’t think someone is spending that kind of time originating my loan.
Comment by Brian — Aug 22nd 2007 @ 9:18 pmThanks Nickel…as we are looking for a home in Taos, I am just learning a lot about mortgages. This certainly helps when people start talking numbers.
Comment by David — Aug 24th 2007 @ 8:17 pmThis is a good list for home buyers. I don’t know whether this list is also applicable in my country. But I will keep this list as a reference next time I buy my first house.
Comment by Harrison — Aug 28th 2007 @ 9:27 amThat’s one thing I wished I had done more of, negotiate some of those negotiable fees.
Comment by retirehappy — Aug 29th 2007 @ 5:15 pmThis article is very misleading. I was a mortgage loan officer for five years (not anymore, so I have nothing to gain).
Maybe these are national averages–I don’t know–but the those fees are a lot higher than that in Texas. Also, processing, doc prep, and title fees are not negotiable.
Comment by Rick — Sep 13th 2007 @ 10:37 am