Mortgage Application Process
By Gustan Cho
If you are a home buyer or a refinance mortgage borrower, there are 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 are normally prohibited with a few exceptions. There is a lot of work that entails in processing and underwriting a residential mortgage loan and every mortgage lender is different on how they charge upfront costs to the mortgage loan applicant. Mortgage loan applicants should not confuse upfront costs and closing costs. Upfront costs can be an application fee, credit report fee, rapid rescore fees, appraisal fees, and other minor fees a mortgage lender can charge and become non-refundable to the mortgage loan applicant. Closing costs are fees and costs associated with closing the mortgage loan and include attorneys fees, title charges, homeowners insurance, points, and other costs and fees in closing the mortgage loan and is reflected on the HUD settlement statement.
Upfront Costs Charged From Mortgage Lenders
A mortgage lender can charge you an upfront credit check fee and/or application fee. However, this upfront costs is dependent on the mortgage lender. I, for example, do not charge any upfront costs to any mortgage loan applicant. If the mortgage loan eventually closes, the credit report fee will be charged at closing. If the mortgage loan applicant does 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 mortgage lenders that do charge an upfront $50 dollar credit report fee. A mortgage loan applicant can shop with numerous mortgage lenders and if they pay a $50 dollar credit report fee with every mortgage lender that charges upfront costs for a credit report, it can become quite costly. If a mortgage lender is asking you for a credit report fee upfront, go to a different lender that will not charge you any upfront costs.
What Upfront Costs Can A Mortgage Applicant Incur During Mortgage Application Process?
Appraisal costs, home inspection costs, inspection fees, and rapid rescore fees are normally third party fees that are upfront costs. A mortgage lender cannot profit from upfront costs. For example, if a mortgage loan applicant needs a rush correction on his or her credit report, the mortgage lender can do a rapid rescore using a third party credit vendor. Credit rapid rescores costs can be quite costly. What is a credit rapid rescore? A rapid rescore is if your credit report needs to be updated from an inaccurate information such as you having an unpaid judgment on your credit report but you have proof that your judgement has been paid and satisifed, your 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 where if you were to do it yourself, it might take 30 to 60 days. There are three credit bureaus ( Experian, Equifax, and Transunion ) and third party credit vendors charge $30 dollars per credit item per credit bureau. If you have to do a rapid rescore on a credit item that reports to all three credit reporting agencies, it will cost you $90.00. If you have ten different credit items that you need to do a rapid rescore and all of the ten credit items report to all three credit reporting agencies, it will cost you $900.00. This rapid rescore costs will be an upfront costs that is non-refundable.
Appraisal costs are example of upfront costs. You need to pay for the appraisal fee upfront and in the event if you do not close on your 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 mortgage lenders but it is a good idea to have a home inspection done if you are 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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