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What Are Lender Costs for a Mortgage?

What Are Lender Costs for a Mortgage?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience
  • Mortgage Lender Cost Overview
  • In short, mortgage lender costs, also known as origination fees, are the fees you pay for the lender to process and close your loan.  Lender costs are the fees that they charge borrowers that they keep as opposed to the fees that they charge that they pay out to third parties such as the appraisal, credit report, tax service or flood certification fees.  Lender costs are one component of the total closing costs you pay when you get a mortgage which also include title company and escrow or attorney fees. Isolating lender costs may enable you to negotiate lower fees and better mortgage terms.

    Additionally, different lenders may use different terminology for the various costs they charge which can make things complicated from the borrower's perspective. Some lenders charge an origination fee while other lenders charge an administration, processing or underwriting fee. Some lenders may charge no fee, a flat fee or break-out lender costs into separate items. Borrowers should become familiar with the different lender costs that they may be required to pay and know how to identify lender costs when they are comparing mortgage proposals. That way you can determine and compare total lender costs, even if different lenders use different terminology.

    Lender fees can be more confusing than other types of closing costs because they can vary by lender type and other factors.  The variation and number of different lender costs can make it challenging to evaluate and compare fees across multiple lenders. For example, the fees charged by a mortgage broker are different than the fees charged by a bank.

    It is also important to emphasize that mortgage lender costs are usually less than a third of total closing costs, depending on your loan amount and other factors. Plus, closing costs are only one consideration when you evaluate mortgage proposals. Borrowers should compare lender fees in addition to total closing costs and interest rates to determine the loan and lender that is right for them.

  • CalculatorUse our MORTGAGE COMPARISON CALCULATOR to compare loans with different mortgage rates and closing costs
  • The table below outlines the various lender costs that you may come across in the mortgage process.  Please note that different lenders charge different fees and use different terminology so you are usually required to pay some but not all of these costs, depending on the lender and mortgage.  For example, administration fee, processing fee, underwriting fee and origination fee are all used relatively similarly by lenders and usually represent the majority of lender costs.  Additionally, discount points, as outlined below, are optional for borrowers.  You can elect to pay discount points to lower your mortgage rate but this is totally the borrower's discretion to decide.

    Review the table below to understand the range of potential lender fees you may be required to pay. The more you know about lender costs, the more likely you are to find the lender offering the lowest fees.

  • Lender Costs
  • Administration Fee
    • Lender cost for processing your mortgage
    • Charged by the funding lender
    Application Fee
    • Lender cost for reviewing borrower mortgage application (cannot be charged when the borrower submits the application)
    • Application fees are relatively uncommon
    Commitment Fee
    • Lender costs for locking in rate
    • Not charged by most lenders
    Discount Points
    • A one-time, up-front fee equal to 1.0% of the mortgage amount charged by the lender or mortgage broker to obtain a lower interest rate than the borrower would otherwise receive
    • The borrower determines whether or not it makes sense to pay a discount point or points to obtain a lower interest rate
    • Review Should I Pay Discount Points?
    Funding Fee
    • Lender cost for funding mortgage
    • Some government-backed mortgage programs such as the Veterans Administration (VA) program charge a separate mortgage insurance funding fee in addition to any funding fee charged by the lender
    MERS Fee
    • Lender cost to register the mortgage in the Mortgage Electronic Registration System (MERS)
    • MERS allows lenders to buy and sell mortgages more easily
    Mortgage Broker's Fee
    • Fee paid to mortgage broker, if you are working with a mortgage broker
    • Mortgage broker cost for processing the mortgage
    • Similar to the origination fee that a direct lender may charge
    • The fee is typically expressed in points with one point equaling 1% of the mortgage amount
    Origination Fee (or Origination Points)
    • Lender cost for processing the mortgage
    • Can be charged by the funding lender or a third-party originator such as a mortgage broker
    • Typically expressed as a percentage of the mortgage amount and called an origination point or points
    • One origination point equals 1.0% of the mortgage amount
    Processing Fee
    • Another term for the lender cost to process the mortgage
    Rate Lock Extension Fee
    • A fee charged to extend the period of time for which your interest rate is locked
    • Most lenders do not charge rate lock extension fees and borrowers should try to avoid them
    Underwriting Fee
    • Lender cost for reviewing borrower documents and determining mortgage qualification
    • Charged by funding lender
    Wire Transfer Fee
    • Lender cost for wiring funds to settlement agent
    • Charged by funding lender
  • Where You Can Find Lender Costs
  • There are two documents borrowers should review to determine lender costs: the Loan Estimate and Lender Fees Worksheet.  Request both of these documents from lenders when you request mortgage quotes or apply for your loan.  We summarize these documents below:

    • Loan Estimate: The lender must provide the borrower a Loan Estimate that outlines key loan terms, including mortgage rate and closing costs, owithin three business days of the borrower submitting a loan application.  Many lenders will provide a draft Loan Estimate without requiring you to submit a loan application.  All lender costs will be itemized in the "Origination Charges" box (item A) on the top left of page two of the Loan Estimate.  Borrowers can review the origination charges outlined in the Loan Estimate to find helpful information on Lender Costs.
    • Lender Fees Worksheet: Provides a breakdown of the various lender costs for a mortgage.  Although lenders are not legally required to provide borrowers a copy of the Lender Fees Worksheet, they usually provide it if you ask.  The Lender Fees Worksheet provides more granular information on lender cost items.  Borrowers may be able to use this detailed information to negotiate lower costs for specific expenses.

    The table below shows lender fees, APRs and interest rates for leading lenders near you.  We recommend that you contact multiple lenders and request mortgage proposals to find the best loan terms.  Shopping for your mortgage is the best way to save money on lender fees.

  • %
    Current Mortgage Rates as of February 16, 2019
    • Lender
    • APR
    • Loan Type
    • Rate
    • Payment
    • Fees
    • Contact
    View All Lenders

    %

    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.
  • Understanding "No Cost" Mortgages
  • When a lender offers a "no cost" mortgage, it is important to understand that this loan will likely have a higher interest rate than a loan with standard closing costs.  Because a no cost mortgage has a higher interest rate, the borrower has a higher monthly payment and pays thousands more in interest expense over the life of the loan as compared to a mortgage with standard closing costs.

  • Great Mortgage IdeaBe sure to understand the trade-off between not paying closing costs and paying a higher interest rate which increases your monthly payment and interest expense
  • If you are interested in a no cost mortgage, despite the higher interest rate and monthly payment, be sure to ask the lender up-front what costs you are required to pay, if any. Make sure that you are not required to pay any lender or third party closing costs such as appraisal report, title and settlement agent / escrow fees. In some cases no cost mortgages may require the borrower to pay certain costs, such as an appraisal fee, up-front, and then those costs are rebated to the borrower when the mortgage closes.

    Additionally, make sure that no costs are rolled into the mortgage, which increases your mortgage amount and monthly payment.  Rolling closing costs into the loan amount is a clever way for lenders to make borrowers pay closing costs without charging up-front fees.  With a true no cost mortgage your loan amount when your mortgage closes should equal the loan amount you agreed to obtain at the beginning of the process.

    Sources

    Lender Costs: https://www.consumerfinance.gov/ask-cfpb/what-are-mortgage-origination-services-what-is-an-origination-fee-en-155/

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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