Upfront Costs Mortgage Application Versus Closing Costs

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This BLOG On Upfront Costs Mortgage Application Versus Closing Costs Was UPDATED And PUBLISHED On December 12th, 2019

Upfront Costs Mortgage Application
Gustan Cho Associates

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 in processing and underwriting a residential loan
  • Every mortgage lender is different on 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
  • 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-paids (escrow)
    • title charges
    • homeowners insurance
    • points
    • other costs and fees in closing the mortgage loan and is reflected on the HUD settlement statement

In this article, we will cover and discuss the upfront closing costs charged by lenders.

Upfront Costs Charged From Mortgage Lenders

What are 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:

  • However, these upfront costs are dependent on the mortgage lender
  • I, for example, do not charge any upfront costs to any mortgage applicants
  • When eventually closes, the credit report fee will be charged at closing as part of closing costs
  • If borrowers do not pursue in getting a residential mortgage loan, I do not charge a credit report fee and normally consider it as part of my 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?

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.

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, 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 charged at closing

What Are Rapid Rescores

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 $30 dollars per credit item per credit bureau
  • Rapid rescores on a credit item that will cost more than $90.00 per credit tradeline
  • 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 for 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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