What Fees Will My Lender Charge Me on My Loan?

While there are many fees that you’ll pay in the course of purchasing a home, and they can all be very confusing, only some of them are related to the financing of it. These other fees, in other words, would exist even if you were to pay cash for the property.

Origination Fee. This will likely be the highest of the several lender fees that you will pay. To go into a little more detail on this, the income that a lender makes comes in one of two forms. The first is through origination fees paid by you, the borrower. The other source of income is from the investor who buys your loan from your lender once it closes. The higher your interest rate, the more money the lender can charge in the sale of the loan to the investor.

That being said, though, to be competitive in the marketplace, a lender needs to be as low as possible on both the fees and interest rates they charge while still having something left over to pay their own bills. If you find yourself coming up short on funds to close, the option of accepting a higher interest rate to lower your lender fees (and hence closing costs) may be an option for you.

Processing Fees. These are just as they sound. There is quite a bit of overhead that a lender puts into a file before it is ever reviewed by an underwriter, which, if done in-house, is in itself another lender fee. Processing fees include various verifications, ordering of title, flood certification fees and others.

Remember that it costs nothing to meet with me to learn more about lender and other fees. I’m always here to help you understand all of the costs that you’ll come across when you finance a home.

Difference between Pre-approval and Pre-qualification Letters

While the terms “pre-approval letter” and “pre-qualification letter” sound similar, they are different in what they provide to you as a borrower.

A pre-qualification letter, the more basic of the two, is something you get from a lender after they verbally collect information from you (for example, relating to income or assets) but before they have documentation from you to support what you have told them. Before issuing a pre-qualification letter, though, they will likely run your credit report to see if, from that perspective, you are able to qualify to purchase a home.

At this point, the lender will give you a letter saying that, pending further verification, you will qualify for a certain payment amount. However, if information they later find tells them something else, then you may either qualify for a lower payment or potentially no amount at all.

Getting a pre-approval letter is a much more involved process where you show items such as pay stubs, tax returns and bank statements, to name a few. This is the letter you want to be showing a real estate agent when you go home shopping, and many will ask for one before they spend time with you.

If you are thinking about purchasing a home and want to get pre-qualified before you start any type of search, call or email me. I’ll help prepare you to be able to put your best foot forward when you go out to find the home of your dreams.