Four Mortgage Fees to Understand |

In a rush to refinance or complete an original mortgage application and lock in low interest rates, many homeowners are less sensitive to mortgage fees and costs than they used to be. There are always going to be fees for a mortgage product but every lender discloses those fees differently. It’s important as you’re preparing to close on or mortgage that you ask for a good faith estimate that lists all the estimated fees associated with your particular loan.

The fees you pay are important because they help to determine whether or not the low interest rate you’re locking in is worth the cost of the loan. Sometimes a slightly higher rate is better than a low rate if it comes with more moderate fees and costs. As you review this good faith estimate, here are four fees that you are likely to see and an outline of what those fees cover.

– Application Fee: This fee can cover a lot and is labeled with many different names. This fee could also be called a processing fee, an underwriting fee, or an administrative fee. Many loans will break it down into smaller fees in each of these categories. This fee is justified because there is a lot of work that goes into running a loan through the pipeline, but try to avoid getting dinged with multiple fees with different names for the same basic thing.

– Appraisal Fee: Appraisal costs are going up because the government is requiring appraisers to fill out additional paperwork for every home they appraise that takes close to an hour to complete. Another new regulation prohibits lenders from communicating with appraisers about a particular property, increasing the chances that the appraisal won’t support the desired loan amount. Appraisers have to get paid whether or not the borrower qualifies for the loan, so this is a standard fee that will be a part of essentially any loan application. Some lenders occasional make promotional offers to waive the appraisal fee, but you can be sure that they’re making up that amount by increasing fees in another area.

– Government Fee: 56% of all outstanding loans are either sold to or insured by Fannie Mae or Freddie Mac. This fee is based on a couple of factors. First, a good credit score makes the fee smaller. Second, the fee will be higher if the borrower is trying to access cash as part of a home equity loan. Finally the more equity you have in the home above the value of the loan, the smaller this fee will be.

– PMI: Private Mortgage Insurance, or PMI, is required for any borrower without at least 20% equity in their home. The amount of PMI you might be asked to pay goes up as your credit score worsens, another reason to keep your credit score as strong as possible. A good lender can help you structure your loan to keep PMI as low as possible, but it’s an important cost to factor into any loan where you don’t have at least 20% equity in the home.