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More About Loans

Section 4 - Chapter 16 (continuation)

Lender Inspection Fee

Some lenders will require a property inspection, and you will pay for it. Most don't do this, so ask.

Mortgage Broker Fee

Mortgage brokers and some banks may charge this fee. It is a way for them to make more money for processing the loans for the true lender, although they may be getting paid by the lender as well. To avoid this fee, go somewhere where they don't charge it. Be sure to look at the good faith estimate to see if the fee is there.

Administration Fee

This could be anywhere from nothing to $300. It is just another fee for doing all the things that should be covered under the loan origination fee. Lenders have found that people are willing to pay more if they break the charges up into numerous smaller fees. Not all lenders will charge this, so check.

Documents Fee

The lender will need to have papers drawn up. This is primarily the mortgage which secures their loan. Thy may have their lawyer review this pre-printed form for a minute or not, but they will charge you up to several hundred dollars for this "document preparation." Again, not all lenders will charge this, or some will charge a more reasonable fee. Ask.

Mortgage Insurance

If you put less than 20% down on the home, you will probably have to pay mortgage insurance. This is commonly an additional percentage added to the interest rate on the loan. It buys insurance for the lender, not for you. It pays off the loan for them if you default.

One half of one percent is a common charge, meaning that if your balance this month is $200,000, roughly $83 of your payment goes to pay for this insurance ($200,000 x 1/2% divided by 12 months). This can obviously add up over the years.

There are several ways to avoid paying mortgage insurance. The obvious one is to have a down payment of 20% or more. If you are almost able to do this, it may be worth borrowing short-term from family to make it work.

Some loan programs will only require mortgage insurance if the loan is for more than 90% of the value. If you can put 10% down, look for these loans to save the charge.

Finally, the insurance charge can be dropped once you have 20% equity in the home. If, two years after you buy the home, the value has gone up 20%, you can get the insurance dropped even if you bought with nothing down. The catch is that you will have to ask, and an appraisal may be required. The lender will let you keep paying for years if you don't push the point.

Other Fees

Underwriting fees, processing fees, service fees and others are all just more ways to charge you for the loan under different names. There will be new fees by the time I finish writing this. Just be sure to ask about all the fees. You should see them on the "good faith estimate" the lender will give you when you apply for a loan. Also ask if there will be any other charges not on that estimate.

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