Upfront Fees During Mortgage Application Process

ByGustan Cho
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In this article, we will discuss and cover the upfront fees during mortgage application process. The mortgage application process starts when pre-approved borrowers get a real estate purchase contract. Or if borrowers are homeowners, they give the mortgage loan originator the heads up to start the refinance mortgage process. The mortgage loan originator will send out the official mortgages disclosures after borrowers have completed their loan application and sent documents. The lender will run the mortgage application file through the Automated Underwriting System for automated approval.

Documents Required By Mortgage Lenders To Start The Mortgage Process

Once borrowers provide the signed mortgage loan application and provide documents requested such as the following:

  • two years tax return
  • two years W-2s
  • two months bank statements
  • current paycheck stubs
  • other documents needed

Start of the Mortgage Loan Application Process

The mortgage loan application gets processed by a mortgage processor so it can get submitted to a mortgage loan underwriter. The mortgage underwriter is the person that decides whether a loan applicant gets approved or not. The underwriter is the person who issues a clear to close.  A clear to close is when the lender is ready to fund the mortgage loan. Closing docs get prepped after the underwriter issues the CTC

How Do Mortgage Lenders Get Paid?

Mortgage lenders get paid when the mortgage loan closes and gets funded. Mortgage brokers make a commission via yield spread premium from the actual mortgage lender who funds the mortgage loan. Mortgage brokers who own their own shop have costs and fees processing a mortgage loan application

Costs and Fees Charged By Mortgage Brokers To Borrowers

Costs and fees mortgage brokers incur are the following:

  • credit report fees that are charged by the credit reporting company
  • DU fees that cost every time a loan officer run an automated approval
  • postage
  • office overhead

Fees That Are Charged By Mortgage Brokers

If mortgage loans do not close, the mortgage broker does not make any money. Mortgage brokers do a lot of work during the mortgage process. Owners of most mortgage brokerage companies are a normally small mom and pop shops

They have overheads such as office rent the following:

  • utilities
  • office support staff
  • rent
  • office supplies
  • credit-reporting fees
  • employees
  • mortgage software fees
  • Many times mortgage loans do not close every month

Mortgage brokers are not allowed to charge anything upfront or ask for any retainers like attorneys or other service providers. There are strict rules and regulations with charging Upfront Fees During Mortgage

If I Decide On A Mortgage Lender, Am I Committed?

Once borrowers decide to choose a mortgage lender, whether it is a mortgage broker or mortgage banker, they can cancel mortgage loan transactions at any time up to the date of the home loan closing. A mortgage loan originator cannot ask for any upfront fees During Mortgage for their services.

What Up-Front Fee Can A Lender Ask For?

If a mortgage loan originator asks for a deposit, credit report fee, application fee, or any other Upfront Fees During Mortgage with the exception of the appraisal fee, needs to go elsewhere. The only upfront fee borrowers need to come out of pocket prior to closing is an appraisal fee. Home Appraisal fee normally runs between $350 and $500. Lenders normally order the appraisal after borrowers get a mortgage loan approval.

What Upfront Fees During Mortgage Application are Liable From Borrowers?

Even though the mortgage company does a lot of work such as processing and underwriting mortgage loan application and has costs associated with processing mortgages, borrowers are not liable for a single cent. Mortgage companies are different than law firms, accounting firms, and other consulting firms. They cannot charge clients a retainer nor can they charge them with their time on working on the mortgage loan application.

Upfront Fees During Mortgage Application Are Regulated

Mortgage companies are extremely regulated. The way they get paid is when they close on the mortgage loan. Public consumers can cancel mortgage loans at any time during the mortgage process until the minute they close on a mortgage loan. Borrowers uncomfortable dealing with their mortgage loan originator can fire him or her and hire someone else during the mortgage process. As far as the appraisal, they may lose the appraisal fee if they decide to change mortgage loan programs.

FHA Appraisal Process

For example, if borrowers have an FHA appraisal and decide to move mortgage loan applications to a different lender, they can do an FHA appraisal transfer. They do not have to pay for another appraisal. Borrowers with FHA appraisal from one lender and decide to go to a different lender but decide to go with a conventional loan would need to pay for another appraisal. The FHA appraisal can be converted to a conventional appraisal for a nominal fee by the same appraiser. Stay away from any mortgage loan originator that asks you for upfront fees and for an application or credit report fee upfront.

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