The Hidden Costs of a Home Loan
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UPDATED: Dec 19, 2011
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When applying for a home loan, borrowers may find themselves overwhelmed with a never-ending list of small charges. Unfortunately, borrowers are responsible not only for the price of the property itself, but also for various lenders’ fees.
Keep in mind that many of these extra fees can be negotiated. Here is a list of the most common extra charges to look out for.
In order to qualify for a home loan, lenders need to know borrowers’ credit scores. This small charge to retrieve a credit report is a necessary step to obtaining a loan. Keep in mind that if a couple applies for a loan together, two credit reports needs to be run, and both scores contribute to the qualification process. If one of the two people has bad credit, the couple may want to consider applying for a loan just through the name of the individual with good credit. This is something to speak to real estate agents about. Credit reports typically run about $10 to $20 each.
Before a lender will approve a borrower for a home loan, the lender needs to know the appraised value of the property in question. In order to obtain that value, the lender will require the services of an appraiser. The borrower is responsible for the cost of the appraisal. Appraisals typically run between $200 and $500.
Underwriting refers to the procedure of reviewing borrowers’ applications for mortgage loans. A loan underwriter reviews applicants’ assets, liabilities, income, credit history, and appraisal. The underwriter is the individual who essentially decides whether or not a particular borrower is a low enough risk to lend money to. Assuming the borrower qualifies for a home loan, the underwriter also determines what interest rate the borrower qualifies for. Underwriting fees are usually between $200 and $400.
This fee will arise if the lender requests certain inspections be made before administering a home loan. Depending on the state, some borrowers are required to perform various property inspections. Depending on the inspection required, these fees can range anywhere from $100 to $500.
If the inspectors require any repairs or modifications to be done to the property after the inspection, that can wind up costing more. But the seller will often (though not always) pick the costs up for these charges.
Tax Service Fee
When lenders lend money to an individual, they need to make sure the borrower is paying property taxes—otherwise the property will be stamped with a tax lien that the lender may find him or herself responsible for. Lenders hire third-party tax-service agencies to monitor the payment of borrowers’ property taxes. Borrowers are then charged a tax service fee, which runs between $70 and $150.
When a borrower is striving to acquire the lowest interest rates possible, the lender will usually require a payment in the form of points. Each point a borrower agrees to purchase usually reduces their interest rate by one-eighth of a percent. A single point is equivalent to one percent of the property’s appraised value.
Loan Lock Fee
A mortgage loan lock fee is charged to lock a quoted interest rate in place. This is charged when a borrower is involved in negotiations to obtain a property and doesn’t necessarily need the loan immediately. The loan lock fee ensures borrowers that their rate will stick at the quoted percent instead of rising or falling with the daily changes that interest rates undergo. Loan lock fees are usually determined by the value of the property and can run between a quarter of a point and one point (a quarter of a percent to one percent of the property’s value).
Lenders often charge an origination fee. This fee is supposedly to cover the cost of creating a loan. Origination fees are usually seen in loans that require special attention or extra work on the lender’s behalf. Subprime loans and refinance loans are examples. Origination fees can run between half a point and two points (half a percent to two percent of the property’s value).