Summary
- Accessing equity through a new mortgage involves two types of fees: lender fees and third-party fees
- Lender fees include processing and underwriting fees, discount points, and loan origination fees.
- Third-party fees include closing and title costs, title insurance, appraisal fees, flood certification, credit report fees, transfer tax fees, and recording fees.
You will be charged two types of fees when accessing your equity with a new first mortgage. They are lender fees and third-party fees. Every transaction is unique, so the fees within these categories vary from one transaction to the next.
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House Numbers helps you access your home equity to pay off debt, fund home improvement, or general expenses.
As you prepare for your next transaction, take the time to learn about the difference between lender and third-party fees. Having a good understanding of the work and cost that goes into the processing, underwriting, and funding of your loan will make you a more informed shopper. And a more informed shopper usually leads to a lower rate and lower fees.
| Fee | Description | Amount |
|---|---|---|
| Processing fee | Fee for lender to process your application. | $500 – $1,000 |
| Underwriting fee | Fee for lender to underwrite your application. | $995 – $1,595 |
| Closing and title | Fee to confirm property title and other closing costs. | 2% to 7% of the loan amount |
| Title insurance | Fee for policy protection from possible issues on title post-closing | $500 – $2,000 |
| Appraisal | Fee for assessment of a property’s value | $300 – $1,000 |
| Flood certification | Fee for assessing property flood risk | $170 – $2,000 |
| Transfer tax fee | Fee for transfer ownership | less than 1% of the property’s value (fee vary across states) |
| Recording fees | Fee charged by local and/or state government for registering or recording legal documents | First Page $10 – $30 Additional Page $3 – $10 (fee vary across states) |
Lender fees
Lender fees in a mortgage transaction are derived from the work the lender does to process, underwrite, and fund your loan, along with the applicant choosing to pay a fee to the lender to obtain a lower interest rate.
Discount points, loan origination fees, processing, and underwriting are all common lender fees you will see on your closing statement. Each one serves a specific purpose, and it’s rare to see two lenders charge exactly the same amount.
Discount points
Discount points are fees you can pay to lower interest rate. The lender charges this fee directly to you, and when it’s charged, it will be listed on your closing statement. Discount points are fees based on a percentage of your total loan amount.
For example
So, if you were to pay 1.00 discount point, and your loan amount is $500,000, the fee you would pay at closing is $5,000 ($500,000 x 0.01 = $5,000).
If you were to pay 1.50 discount points, you would pay a fee of $7,500 to obtain the lower rate you were quoted.
Consult with your tax professional to see if you can secure any tax benefits if you were to choose to pay a discount point fee.
Loan origination fees
There is a similarity between discount points and loan origination fees; they are both based on a percentage of the total loan amount. However, the purpose of the two fees is different. While a discount point is a fee to lower your rate, a loan origination fee is charged to help offset or fully cover your loan’s processing, underwriting, and closing.
Processing and underwriting fees
Some lenders charge processing and underwriting fees, while others charge just an underwriting fee. A processing fee is usually charged when an actual person (other than the loan officer and underwriter) is dedicated to processing your file. A processor usually coordinates between you, the underwriting team, and the closing agent.
The typical cost of a processing fee is $450 – $650.
A more common fee is an underwriting fee. The fee covers the cost of underwriting your file according to the lender’s guidelines. Most lenders charge an underwriting fee between $995 and $1,595.
Third-party fees
The next category of fees is third-party fees. These are fees charged by an entity or person other than the lender. These services are independent of the lender and are neutral within the transaction. They don’t work for the lender, nor do they work for you.
Closing costs and title companies
Estimated cost: 2% to 7% of the loan amount
The closing costs and title company fees include a number of different fees like notary, recording fees, appraisal fee, credit report, HOA, etc. These fees typically add up to about 2% to 7% of the purchase price of the property.
There are many variations of how these fees are calculated and processed depending on which state you live in. States like Arizona have title companies and title agents handle closings. In Arkansas, title agents handle the escrow process, and attorneys conduct closings.
California is an interesting state when it comes to closings and title companies. The state is split in two regarding the closing process and how title companies operate. In Northern California, title companies perform the closing duties via escrow, and in Southern California, private escrow companies handle the transaction’s closing.
Other states like Connecticut, Delaware, and Georgia have attorneys who handle the transaction’s closing.
No matter which state you refinance or purchase a home in, you will have closing fees associated with a separate third party. Fees can range from a few thousand dollars to ten thousand or more (if it’s a high-value transaction).
Here is a sample estimated fee breakdown for closing fees in California.
| Fee | Amount | Inclusion |
|---|---|---|
| Escrow fees | $1,000 to $2,000 | Escrow fees, Notary fees, Recording fees, Document preparation fees, Title search fees, Courier fees, Title insurance |
| Lender fees | $1,500 to $2,500 | Lender origination fee, Appraisal fee, Credit report fee, Flood certification fee |
| Other fees | $1,000 to $2,000 | Property taxes, HOA transfer fee, Home warranty |
| Total | $3,500 to $6,500 | This range is large because every lender is different, every city/state is different, and of course, every home is different! |
Please note that this is just an estimate, and actual closing costs may vary depending on the specific property and transaction.
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Title insurance – lender and owner
Estimated cost: $500 to $2,000
What is title insurance? It’s a policy that protects lenders and owners from possible issues on title post-closing. When you start a new transaction, the title company will do a title search, a basic historical review of the transactions tied to the property.
When that search is complete, the title company will either say the title is clear or not clear. Clear means they did not find anything negative that might be an issue for the property post-closing.
Not clear means they did find something (commonly referred to as a cloud) that will impact the transaction, and that issue needs to be fixed before closing.
Once the transaction closes, the lender and owner (owner is optional) are insured that there are no issues with the title. If one comes up, the title company will cover the cost to fix the problem. Also, an owner only needs a policy on purchasing the home, not when they refinance. A lender will need a title insurance policy with each transaction.
Title endorsements, a.k.a. riders
In addition to title insurance, there are instruments called title endorsements, a.k.a. riders. These are basically addendums to the title policy that was issued. A title endorsement modifies the original policy by either adding, deleting, or updating the original verbiage of the policy the title company issued. These endorsements come with a fee, and most purchase and refinance transactions have them. Generally, they are in the $25 – $100 range per endorsement.
Appraisal
Most transactions will require an appraisal. This fee is charged by a company referred to as an AMC (Appraisal Management Company) or directly by the appraiser. Post 2008, the federal government separated the appraisal process from the loan process to better ensure that appraisers.
The estimated appraisal fee for a single-family home in the United States typically ranges from $300 to $500. However, the actual fee may vary depending on a number of factors, including the size and complexity of the property, the location of the property, and the appraiser’s experience.
Here are some examples of estimated appraisal fees for different types of properties:
| Property type | Estimated appraisal fee |
|---|---|
| Single-family home | $300 to $500 |
| Condominium | $300 to $400 |
| Multi-family home | $600 to $1,000 |
Flood certification
Estimated cost: $170 to $2,000
The Flood Certification confirms whether the property is in a flood zone. If the property is in a flood zone, the lender will require the homeowner to obtain flood insurance before closing. FEMA completes flood Certification, and FEMA charges a fee for this service. That fee is then passed along to the homeowner.
The cost of processing a flood certification can vary depending on the complexity of the property. In the United States, the national average cost for a flood certification is approximately $600, with a range of around $169 to $2,000 or more.
Please note that these fees are just estimations and the actual cost may vary depending on the specific circumstances of the property and the location.
Credit report
Every transaction will require a credit report. In 2023, the three main credit bureaus increased their fees, and as a result, those increases were passed along to consumers. Typically, a credit report fee for one person, ordered by a mortgage lender, will run $45 – $65 for a single person. The cost of the two reports will be closer to $100 for a married couple.
Now, additional costs are added to that, so your final credit report fee might be higher. What are the additional costs? You may see two main additional fees added to your final credit report total. They are;
- When your lender underwrites your file, your credit report is re-issued into the underwriter’s software for underwriting. Credit providers charge a fee for this.
- If your credit report needs an update, let’s say it didn’t show you made your mortgage payment in the last three months. The lender would need the credit report to be updated with that payment history. In this scenario, the loan officer would contact the credit provider and request a “credit supplement.” The credit supplement will be prepared by the credit provider with that information, and they charge a fee for that service.
Before you move forward, take the time to review your credit report with your loan officer so that you can be informed if there will be any additional fees associated with the credit report.
Transfer tax fee
Most states charge a fee to transfer ownership from one person to the next. I’m aware of twelve states out of the fifty that do not. They include Alaska, Idaho, Indiana, Louisiana, Mississippi, Missouri, Montana, New Mexico, Oregon, Texas, Utah, and Wyoming.
Most states have a percentage they charge for the transfer of ownership, and your closing company can provide those details.
Recording fees
Recording fees are charged by your local and/or state government to record you as the property’s new owner. These fees can vary widely from state to state.
Here is a sample of property recording fees from different states
| Location | Fee (1st Page) | Additional Page | Reference |
|---|---|---|---|
| California | $14.00 | $3 | https://www.sfassessor.org/recorder-information/recording-document/recording-fees |
| Florida | $10.00 | $8.50 | https://www.mypalmbeachclerk.com/about-us/fees/public-records-fees/recording-fees |
| Texas | $26 | $4 | https://www.bexar.org/2951/Real-Property-Recording-Fees |
How to negotiate lender fees
Negotiating lender fees will help you lower your total fees to close your transaction. There are two key elements to negotiating lender fees. They are;
- Knowledge
- Comparison shopping
For you to be in a position of “power” when negotiating your lender fees, you must know what you are trying to accomplish. Reading this article is a great first step! Understanding more than just the basic terms of rate, payment, points, and fees is essential. Learn about debt-to-income ratio, loan-to-value ratio, and how your credit score impacts your rate.
Learn about where mortgage rates originate (hint – not the Fed, but in the Mortgage-Backed Securities market) and use that knowledge to your benefit.
Next, you should always obtain two to three quotes from reputable mortgage companies. Don’t bother with a mortgage company with less than an A- rating with the Better Business Bureau. Stick to the companies with great ratings and reviews, and find a loan officer with at least 5-10 years of experience.
Once you have your two to three quotes, work with each loan officer to see what can be done to lower their fees. Some lenders won’t negotiate because they offer their best possible fee structure upfront at the beginning.
Are third-party fees negotiable?
In my nearly 20 years of experience, there has never been a time in which third-party vendors have been willing to negotiate their fees. Now, you are only required to use some of the third-party vendors the lender secures for the transaction. You have the right to choose a different closing and title company, and so can shop around for lower fees.
You must use the credit report vendor the lender uses and the appraiser the lender obtains to value your home.
Higher rate equals less fees
If you want to find a way to reduce your total fees due at closing, consider taking a higher rate. I know it sounds crazy, but it’s true! Sometimes, a small bump in rate might save you thousands of dollars in fees. This is especially important to consider if interest rates are high, and you think you’ll be refinancing the mortgage in the next twelve to twenty-four months or if you plan on holding the property for a relatively short period of time.
When you raise your rate, the lender will issue you a credit to help cover some or all of the closing costs. Discuss the options you have with your loan officer and consult with your tax professional as well (to see if there are any tax implications).
Managing your lender and third-party fees
When you refinance a current mortgage to access your home equity to purchase another property, you’ll face numerous fees (on both transactions). Knowing which fees are your negotiable lender fees and deciphering what your third-party fees are will enable you to secure better financing and put more money in your pocket. I believe knowledge is the tool that will save you money. And when you’re saving money, you’re making money.
