In this blog, we will discuss and cover the upfront costs mortgage application versus closing costs. All home buyers or a refinance mortgage borrowers have closing costs associated with obtaining a residential mortgage loan. However, there are strict rules and regulations, both federal and state, on costs a mortgage lender can charge. Upfront costs mortgage application are normally prohibited with a few exceptions. There is a lot of work that entails processing and underwriting a residential loan. Every mortgage lender is different in how they charge an upfront costs mortgage application. Borrowers should not confuse upfront costs and closing costs. Upfront costs mortgage application is part of the overall borrowers closing costs.
What Are Closing Costs
Closing costs are fees and costs associated with closing the mortgage and include:
- application fees
- credit report fees
- origination fees
- yield spread premium
- attorneys fees
- pre-paid (escrow)
- title charges
- homeowners insurance
- discount points
- other costs and fees in closing the mortgage loan and is reflected on the HUD settlement statement
In this blog, we will cover and discuss the upfront closing costs charged by lenders and how it gets paid.
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Upfront Costs Charged From Mortgage Lenders
A mortgage lender can charge borrowers an upfront credit check fee and/or application fee. Most lenders do not charge an application and/or credit check fee as an upfront costs mortgage application. Gustan Cho Associates does not charge any upfront closing costs. These upfront costs are dependent on the mortgage lender. When eventually closes, the credit report fee will be charged at closing as part of closing costs.
Lenders Charging Upfront Mortgage Application Costs
Gustan Cho Associates mortgage does not charge a credit report fee and considers it as part of a business expense. There are many lenders that do charge an upfront $50 dollar upfront credit report fee. Borrowers can shop with numerous lenders and if they pay a $50 dollar credit report fee with every lender that charges upfront costs mortgage application for a credit report, it can become quite costly. If a lender is asking for a credit report fee upfront, go to a different lender that will not charge any upfront costs mortgage application.
What Upfront Costs Can Borrowers Incur During Mortgage Application Process?
Upfront Costs Mortgage Application depends on lenders borrowers consult with. Smaller mortgage broker shops normally can charge an upfront costs mortgage application. However, most larger regional and/or national lenders will not charge any upfront costs with the exception of an appraisal fee when the home appraisal is ordered.
Examples of Upfront Application Costs
Appraisal costs, home inspection costs, inspection fees, and rapid rescore fees are normally third-party fees that are upfront costs. Lenders cannot profit from upfront costs. For example, for borrowers who need a rush correction on their credit report, the lender can do a rapid rescore using a third-party credit vendor. Credit rapid rescores costs can be quite costly. Smaller mortgage broker shops will ask for an upfront fee by borrowers to do rapid rescores. However, most lenders will not ask for rapid rescore fees upfront. Rapid Rescore Fees are normally paid for by the lender. However, there are mortgage companies that will charge the borrower for rapid rescore fees. Each rapid rescore fee is $35 dollars per credit tradeline per credit bureau. Therefore, it can add up substantially if multiple credit tradelines have to be rapid rescored.
What Are Rapid Rescores
What is a credit rapid rescore?
A rapid rescore is if credit report needs to be updated from inaccurate information such as the following:
- unpaid judgment on the credit report
- have proof that judgment has been paid and satisfied
- the mortgage lender can take the proof of the judgment pay off letter and have a third party credit vendor do a rapid rescore
- The third-party vendor does this in 3 to 5 business days
- if borrowers were to do it themselves, it might take 30 to 60 days
There are three credit bureaus:
- Experian
- Equifax
- Transunion
Third party credit vendors charge $35 dollars per credit item per credit bureau:
- Rapid rescores on a credit item that will cost more than $105.00 per credit tradeline for all three credit bureaus
- Borrowers with ten different credit tradelines that need rapid rescores can easily rack up close to $1,000 in fees
- This rapid rescore costs will be an upfront cost that is non-refundable
Appraisal costs and other inspection fees are the only upfront costs borrowers should incur during the mortgage process. Borrowers need to pay the appraisal fee upfront. In the event borrowers do not close on a mortgage loan, the appraisal fee is non-refundable. Home inspection costs are upfront costs and these costs are not refundable. Home inspections are normally not required by lenders. It is a good idea to have a home inspection done when purchasing a home. Other inspection services such as well inspections, septic inspections, termite inspections, roof inspections, asbestos inspections, are all upfront costs and are not refundable.
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Disclosing Costs on the Loan Estimate
The loan officer needs to disclose all potential closing costs on the Loan Estimate. This also includes upfront closing costs. Most loan officers will over disclose closing costs. If the loan officer under discloses the closing costs, including third-party closing costs, by more than 5%, the loan officer is liable for the difference of any fees the borrower has to pay pass the 5% amount. If you have any questions about the content of this blog and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
