Closing on a home, especially the first time, can be intimidating. You’ll feel like everyone is taking money out of your pocket. But being informed can take much of the fear out of the process. Here is a list of the most common mortgage fees you’ll see – and what you can do about them.

Application Fee – The fee charged by your bank or lender to apply for a loan, generally intended to cover initial processing costs and a credit check.

Loan Origination Fee – Another fee charged by your bank or lender (sometimes called an underwriting, administration, or processing fee) designed to cover the costs of processing and evaluating a loan for you, such as legal costs, notary fees, and overhead.

Title Search Fees – A fee paid to research the property to ensure there are no other claims against it that would interfere with your ownership.

Title Insurance Fees – Title insurance guards against an error in the title search; should a previously-undiscovered problem rear its head, this policy protects the lender. If you want to protect yourself, you’ll also need an owner’s title insurance policy.

Appraisal Fees – Any lender is going to require an appraisal to ensure that you’re paying a fair price for your new home.

Points – A point is 1% of the loan amount. A lender may offer you a lower interest rate if you pay points up front. Like mortgage interest, points are tax-deductible in the year you pay them.

Home Inspection Fees – Your lender may require you to get a home inspection to check for major structural or other damage, water quality, pests, etc. Even if it’s not required, a home inspection is a good idea for your peace of mind.

Prepaid Interest – This is the interest that will build up, or accrue, on your mortgage until your first scheduled mortgage payment. The lender will want this up front.

Private Mortgage Insurance (PMI) – If your down payment is less than 20% of your home’s value, the lender may want you to purchase PMI to cover its losses in case you fail to make the payments. Once you’ve built up enough equity and have established a good payment history, these payments will stop.

Flood Determination Fee – A fee the lender may charge to determine if your home is in a flood zone, and if you’ll need to buy flood insurance.

Homeowners’ Insurance – The insurance policy that protects against fire, natural disasters (other than floods), and other hazards that can damage your home.

Escrow (or reserve) funds – You may be asked to pony up money at closing to put in an escrow account to cover property taxes, insurance, and other costs. Even if you don’t pay this at closing, part of your monthly mortgage payment will probably go toward escrow. When the bills for taxes and insurance come due, the lender takes the money out of escrow and pays them for you.

Property Survey Costs – This is a fee to obtain an accurate, legal survey of the exact location of the property you’re buying to ensure that you are getting exactly the land you’re paying for.

Bundled Fees – Some lenders may offer some, but not all, of the fees listed above as part of a package deal. That’s fine as long as you understand exactly what’s included, and what you’ll still have to pay at closing.

While the existence of so many fees can be shocking, there’s good news. A good faith estimate will give you an idea of what’s you’ll be expected to pay. Ask your lender for this estimate and an itemized list as early in the process as possible. If there are any fees listed you don’t understand, ask for an explanation. Also realize that many fees, especially application and processing fees, are negotiable. Ask your lender to reduce or waive these fees; alternatively, the seller may be willing to pay them. Don’t be afraid to ask – after all, this is the biggest purchase you’ll ever make.

Make sure you ask questions if you are unsure about something.

Kevin O’Connell

Cornerstone Mortgage

636-390-8400

314-517-5737