Some lenders charge a fee for applying for a loan. It covers the costs of handling your loan application and reviewing your credit report. In some cases, even if your loan is turned down, you may have to pay this charge. My City Mortgage does not charge an application fee.
A point is one percent of the total loan amount. There are two types of points.
Discount points – You pay this fee to lower your interest rate
Origination points – This fee covers the cost of evaluating and preparing your loan and varies by lender and credit score. My City Mortgage does not charge an origination fee.
Should you pay points? It depends on how long you’ll keep the home and/or mortgage. You may not be able to deduct them on your income taxes, so it’s something to carefully consider, looking at your break-even point to make sure it makes sense to pay them.
Most loans require a new appraisal on the property. Just like when you bought the home, your lender had an appraisal done to ensure there was enough collateral to back up the loan. Some lenders waive the need for an appraisal if you’ve recently had one done. Talk to your lender about your options.
Attorney Review and Closing Fees
If you hire an attorney to review your documents, discuss the loan, and/or attend the closing, you’ll pay a fee to cover the services.
Title Search / Insurance
A title search ensures you are the homeowner on record. It also checks for liens. Title insurance protects the lender against errors in the title search results. If a problem occurs, the insurance protects the lender’s interest in your mortgage.
If you work with the firm of the existing title insurance policy, they may reissue the policy on a new loan at a lower cost.
Mortgage Insurance or PMI
If you put down less than 20% on a conventional loan or you borrow an FHA or USDA loan, you’ll pay mortgage insurance.
Mortgage insurance on a conventional loan lasts until you owe less than 80% of the home’s value. You can cancel the insurance once you hit that point or the lender will automatically cancel it at 78% LTV. If you borrow FHA or USDA loans, though, the mortgage insurance lasts for the entire term.
FHA, USDA, and VA loans also charge upfront mortgage insurance in the amounts of 1.75%, 1.0%, and 2.3% respectively.
Homeowner’s insurance covers physical damage to your home caused by fire, wind, theft, and other covered events.