Lenders may charge an underwriting fee to cover the cost of originating, processing, underwriting (of course) and closing your mortgage. In short, the underwriting fee is a closing cost paid by the borrower directly to the lender to cover their overhead and administrative costs and to make money from your mortgage.
Different lenders use different terminology for fees and expenses and may charge an origination fee, administrative fee or processing fee instead of an underwriting fee. No matter what you call it, these are all lender fees you pay when you get a mortgage.
We should also highlight that some lenders advertise that they do not charge certain fees when in fact they charge other lender fees but call them a different name. Borrowers should focus less on the terminology used and more on the total cost of all the fees charged by the lender.
Some lenders charge a flat underwriting fee -- usually $995 -- while other fees are charged based on a percentage of your mortgage amount. For example, a lender may charge an underwriting or processing fee of 1% of your loan amount. These fees may also be called origination points.
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The amount of the underwriting fee or other lender fees depend on the lender, your mortgage, amount, loan program and other factors. Additionally, in many cases the amount of lender fees are inversely correlated to your mortgage rate. This means that lenders that charge little or no fees typically offer you a higher mortgage rate while lenders that charge higher fees may offer you a lower rate.
You should understand the trade-off between paying lower lender fees and paying a higher mortgage payment for the entirety of your loan. Paying lower lender costs may not make financial sense in the long run.
Lenders should disclose all fees when you request a mortgage quote and are legally required to disclose them on the Loan Estimate they provide you within three days of submitting your mortgage application. You can use the information provided in the quote or Loan Estimate to compare the costs and mortgage rate the lender is charging to mortgage proposals provided by other lenders.
While mortgage lender fees can be confusing and overwhelming the most important point to remember is that they are negotiable and you are only required to pay them if you choose to work with that lender. If a lender is offering you an attractive mortgage rate, you may be more willing to pay the fees proposed by the lender. If you think the lender fees are to high, attempt to negotiate them down.
For example, if a lender is proposing a $1,000 underwriting fee, ask the lender to cut the fee in half or eliminate it altogether without increasing your mortgage rate. You can also ask a lender to match lower costs offered by a different lender. Generating competition between multiple lenders can help you significantly improve your mortgage terms.
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To summarize, an underwriting fee is one of several lender fees you may come across when you get a mortgage. You should attempt to negotiate the lowest lender fees possible without increasing your mortgage rate. While not all lenders are willing to reduce their fees, it never hurts to negotiate. If a lender is proposing high lender fees you should shop around to find better mortgage terms. Ultimately, you select the lender and decide the amount of fees you want to pay.
“What are mortgage origination services? What is an origination fee?” CFPB. Consumer Financial Protection Bureau, November 15 2019. Web.« Return to Q&A Home About the author