So you’re doing the right thing, getting your financing in order so that you can take advantage of this historical buyer’s market, and your lender has told you how much of a loan you can afford, what your monthly payments will be and what your costs on the day of closing will be. Good for you.
What, though, are all these line items on the “Good Faith Estimate”. Of course, your lender will be able to explain all of them. But perhaps you want to verify wheat you’ve been told. Or you just need a bit more explanation. Maybe you’re just shy about asking. (So many of us feel we should be knowledgeable about everything and it’s just not possible. NEVER refrain from asking questions. A professional, conscientious lender, agent, attorney, inspector will welcome being able to answer you.)
All that having been said, what are those danged charges? Follows is a partial list of some of the charges you may find when you buy a house. These are the costs that are generally considered charged to arrange the loan itself. There are other costs regarding taxes, insurance, revenue stamps and attorney fees that will be addressed in subsequent posts.
[NOTE: Legitimate charges can vary by region, the type of loan and the lender. When in doubt the reason for a cost, ask]
Origination Fee: The lender charges this to cover the cost associated with setting up the mortgage. Often it will be expressed as “1 point, ½ point, 1.5 point, etc.,”. A point equals 1% of the amount financed.
Loan Discount Fee: This is a charge paid if you decide to may extra for a reduced interest rate. Doing so is not always a good idea as you need to weigh whether the cost of the discount fee (again, usually expressed in terms of ‘points’) is made up by the reduction in monthly payments. Ask your lender to calculate the savings and how long you’d need to stay in the house for the discount fee is ‘paid for’.)
Appraisal Fee: The appraisal is required by the lender to ensure the property is worth what is being loaned. This is one fee the lender will generally require in advance.
Credit Report: The lender requires this in order to make sure YOU are worth what they’re lending. It will show your payment history, total outstanding loans, open lines of credit, etc., this lender will also probably require this up front at the start of the application process.
Application Fee: Strictly a fee charged by a lender and will vary widely depending on the lender. Some lenders don’t charge on at all.
Commitment Fee: Another lender fee. Varies greatly lender to lender.
Document Fee: See previous two items.
Flood Certification Fee: Covers cost to evaluate whether property is in a flood plain and whether flood insurance will be required.
