A Brief Explanation of Mortgage Fees

In addition to the loan itself, your mortgage has a number of fees associated with origination of the loan, as well as some ongoing costs. Some of these are payable in advance, and others must be paid when you close on the property. In general, these costs typically total between three and five percent of the value of the property you're buying.

Most fees associated with a mortgage come under one of two groups: fees associated with getting the mortgage (such as title insurance, credit checks, and loan origination fees), and fees paid to local or state government (such as prepaid taxes and document recording fees). When you apply for a loan, a lender is required by law to provide you with a Good Faith Estimate within three days of application, in which closing costs are detailed.

Here's a quick break-down of the fees you can expect for a typical mortgage.

Administration Fees: These fees are paid to the lender, and can include document delivery fees, notary fees, document preparation fees, and processing fees. Reduce your mortgage costs by questioning these fees-if your mortgage does not have to be completed as quickly as possible, ask that documents be delivered via regular mail rather than overnight delivery, for example.

Application Fee: This is the cost of processing the loan, and must usually be paid to the lender when you apply. Note that this fee is typically non-refundable in the event you decide not to take the loan.

Appraisal Fees: The lender requires that the property be appraised to determine the market value of the property and ensure the mortgage has an acceptable level of risk.

Attorney Fees: If an attorney must prepare and review loan documents, an addition fee is paid for document preparation.

Credit Report Fee: A fee for having your credit report pulled by the lender.

Document Preparation Fees: Charged by the lender or Title Company for the preparation of legal documents such as deeds of trust and the mortgage contract.

Earnest Money: This is paid by the buyer when an offer is made on the property. It is usually a small amount of cash, and is paid to the seller as a show of good faith. This money is held in the escrow account.

Escrow Account Funds: Includes up to two months worth of private mortgage insurance (if applicable), homeowner's insurance, hazard insurance, and property taxes payments. This money is held in the escrow account.

Loan Discount Points: Borrowers can choose to ‘buy down' the interest rate by paying points in addition to the loan origination fee. Each point is equal to one percent of the value of the loan, and one point typically represents about one eighth of a percentage point. This fee is paid to the lender.

Loan Origination Fee: Fees charged by the lender to cover administration fees involved in preparing, evaluating and submitting a loan. This is usually equal to one percent of the value of the loan. Origination fees may be as high as two percent, but unless your loan is particularly complicated you should expect to pay no more than approximately one percent.

Mortgage Broker Fee: Only applicable if you use a mortgage broker rather than working directly with a lender.

Mortgage Underwriting Fee: Covers underwriting, closing and funding costs for your lender. This is typically where the lender makes their immediate profit from lending (as opposed to profit over time from interest). Note that brokers should not charge an underwriting fee, as they are not the ones underwriting your loan.

Prepaid Interest: The interest that accrues between closing time and the date of the first mortgage payment. This fee is paid to the lender at closing time. Close at the end of the month to reduce the amount of prepaid interest-this will also reduce the amount of cash you need to come up with at closing time.

Property Inspection Fees: Including general property and pest inspection. Property inspections protect both the buyer and the lender.

Survey Fee: The lender or title search company may require that the property be surveyed to determine the property's official boundaries, and ensure that they have been upheld.

Title Insurance: Taken out on a property to protect the buyer in case there are any unpaid mortgages or tax liens on the property that is overlooked during the title search. In the event that any title issues appear in the future, title insurance pays for legal costs and reimburses you for any other losses you incur.

Title Search Fee: A title search is carried out on the property to make sure the person selling it is the legal owner.