How Much Do Fees Add to the Cost of a Mortgage?

If you are a first-time home buyer, you might not be aware that there are costs involved with getting that home you want that can add either to your out-of-pocket costs or to the effective cost of your mortgage loan. These costs are usually called mortgage fees or closing costs, and they can add substantially to what you have to pay.

The largest of these is your cash down payment, typically 20% of the sales price. VA or FHA loans may be available with much lower down payments to qualified buyers, but even so, the down payment represents the biggest outlay of cash you’ll have to make.

Compared to the down payment, the other fees you have to pay seem small, but there can be lots of them and they can add up quickly. In general, fees or closing costs typically add 2% to 5% to the price of the home.

The following list from Realtor.com indicates what the fees are and a typical range for their cost.

Appraisal fee ($450 to $650): Your lender almost certainly will require an independent appraisal of the home’s value and most will require you to pay the fee before the loan is approved.

Closing fee ($300 to $600): This fee pays the cost of having a title company representative present at your closing to supervise the transfer of the title from the current owner to you.

Credit report fee ($25 to $50): This is the cost of getting your credit report.

Inspection fee ($450 to $500): While not usually required, but buying a home without a professional inspection can be costly. Based on the inspection, you may be able to reduce the price you pay for the house by negotiating with the owner for certain repairs.

Lender’s title insurance (usually 0.5% of the purchase price): This fee protects the lender in the event the title search missed something. The cost varies by state.

Survey fee ($350 to $500): Most states require a survey before you can get a loan. You can avoid this fee if a survey already exists.

Title search ($300 to $600): A title company assures the lender (and you) that there are no liens on the property.

There are additional fees that may or not be required:

Mortgage application fee ($100): A processing fee charged by the mortgage lender.

Attorney fee ($150 to $500): Some states require you to have your own attorney present at closing.

Flood certification ($5 to $10): Required by the lender to determine if the home is located in a flood zone.

Homeowner’s title insurance (average cost of $1,000): This fee is not required, but title insurance protects you from having to pay if the title company missed anything during its title search.

Origination fee ($300 to $1,500): Sometimes called a processing fee, this covers the cost to prepare your mortgage. This fee is not always charged.

Points (usually 1% of your total mortgage): Sometimes called discount points, these are lender fees you can pay to reduce the cost of your mortgage. They can also be included in your mortgage to reduce your out-of-pocket costs, but they will cost you more over the life of the loan.

Underwriting fee ($400 to $600): Your lender charges this fee to pay for the work it does to research whether or not to approve the loan. This may be bundled with the origination fee.

Wire or courier fees ($30 to $100): You pay for the costs of overnight document delivery or wire transfer fees to move your down payment from your bank to the seller.

Some or all these costs can be rolled into your mortgage and have a significant effect on your monthly mortgage payment. For example, if your mortgage loan amount is $250,000 at an interest rate of 4% for a 30-year fixed term and you have $4,500 in fees, your effective loan rate is 4.23% and your monthly payment increases from around $1,193 (principal and interest only on the loan) to around $1,227. Over 30 years that additional $34 a month costs you $12,240.