Loan Origination Fee

  • This is the fee a lender charges for work in preparing the loan. It is often expressed as points. One point is equivalent to 1% of the loan amount.
  • Loan Discount Points
    • This is a fee, also expressed as points, paid to the lender to buy down the interest rate. This means that in exchange for paying points up front, the lender will reduce your interest rate. On average, one point will typically reduce the interest rate on a 30-year mortgage between .25% – .50%. This can vary between lenders. It could be beneficial if you plan to stay in your home for a number of years. Here’s an example of how much interest you would pay over a two-year period vs. a 15-year period on a 30-year mortgage with and without points:

Interest Rate

Points

Payments

2 Yr. Interest  15 Yr. Interest 

8.375

0

$760

$16,623

$114,575

8

1

$733

$15,870

$108,859

7.625

2

$708

$15,116

$103,173

In this example, after allowing for the $1,000 (one point) paid up front to reduce the interest rate, you would pay $247 more after two years on the 30-year loan with points, but $4,716 less interest after 15 years. This pattern also holds true paying two points. This demonstrates that it makes sense to consider paying discount points only if you plan on staying in your home for a number of years. To compare mortgage loan payments with and without points, you can use the credit home financing calculators. For information on mortgage shopping, read the Federal Trade Commission information about Looking for the Best Mortgage.

      • Appraisal Fee
        • This pays for the independent appraisal that estimates the market value of the property. This is often required to be paid at the time of application and would appear on the settlement sheet as “POC” or “paid outside closing.” Ask for a copy for your files. Expect to pay between $300 – $1,000, depending on the size and location of the property.
      • Credit Report Fee
        • This pays for a comprehensive mortgage credit report that often combines information from the three major credit reporting agencies, Equifax, Experian, and Trans Union. The information contained in your credit report will be used by the lender to determine if you qualify for a loan and for what rate you are eligible. This, too, is often POC. This can range from $25 – $100.
      • Title Search and Title Insurance
        • A title search and examination needs to be completed to prove that the seller actually owns the house. A title search also discloses whether there are other claims, judgments or liens on the property. Title insurance protects the lender against any ownership claims that may arise due to errors in the title search. The title insurance will probably be 0.2%-0.5% of the loan amount. The title services can range from $200 – $500. For more information, see the State of Washington’s factsheet about title insurance.
      • Interest
        • Typically, the amount of interest accrued between the closing and the first mortgage payment will be collected.
      • Survey
        • A survey will be required to ensure that there are no discrepancies over boundaries with neighboring properties. This can range from $150 – $400, depending on the size and location of the property.
      • Home Inspection
        • This is another fee that is typically POC. The home inspection is not required like an appraisal, but it is advisable to have one done if you are buying a home so you can anticipate any faults or potential repairs that may be needed. The inspection would typically be done after a contract or purchase agreement is signed, so it is important to include a clause in the contract that makes the sale contingent upon a satisfactory home inspection. This clause should spell out the terms to which both the buyer and seller are responsible. For more information, see the article on Home Inspections. This usually ranges from $150 – $500, depending on the size of the house and how extensive the inspection is.
      • Other Fees
        • These can include fees for processing, document preparation, document stamp taxes, recording the new deed with the courts, couriers, loan assumption, survey, home inspection, flood plain certification, underwriting, wire transfers, and attorney fees.

The lender is required to provide you with a “Good Faith Estimate” within three days of your application that outlines the anticipated fees that will be associated with your loan. You should go over this document very carefully and get clarification on any fees you don’t understand. Also, you should bring this document to the closing to make sure there are no major discrepancies between the estimate you were given and the actual costs that were incurred. The homebuyer’s rights in relation to closing costs are protected by the Real Estate Settlement Procedures Act (RESPA). See the HUD website for more information about RESPA.