Most people need to obtain a mortgage loan to pay for their home. There are often fees associated with obtaining a loan such as the ones listed below. These fees include ones paid directly to the lender or the lender’s designated payee. Fees payable to third-party loan originators (typically Mortgage Brokers) are also shown in this section of the HUD-1.
- Loan Origination Fee – This fee covers the lender’s cost of obtaining financing and administration for your loan. The fee is usually calculated as a percentage of the loan amount but can also be in a flat dollar amount. It has become more common for an “application” fee (stated in flat dollar amount) and, possibly, other up-front charges like an “underwriting” fee (also usually in flat dollar terms) either to take the place of or be in addition to an origination fee. Each lender and each loan program a lender offers will have different front-end charges. You should shop carefully and examine all the fees and terms prior to closing. It is generally too late to change those fees and terms at closing.
- Loan Discount (Sometimes referred to as “points”) – This is a one-time fee charged by the lender in order to give you a lower interest rate on your loan. Each point is 1% of the mortgage amount. Points paid upfront can reduce the interest rate you pay on your loan. Whether this is the best option for you in shopping for a mortgage loan depends on whether you have the necessary cash and how long you think you’ll stay in the home or keep the mortgage before selling or refinancing — the longer you intend to stay and keep the financing, the better off you may be paying something upfront and paying a lower interest rate on your loan. In any event, this cost will be collected at closing generally.
- Appraisal Fees – To approve your loan your lender has to obtain an estimate of what your home is really worth. The appraisal fee covers the cost of getting an estimate of the market value of your home, usually by an independent, certified, licensed appraiser.
- Credit Report Fee – Mortgage lenders require a credit report to determine whether or not you are eligible (have good enough credit) for a loan, how much they will lend you and at what interest rate. Credit Reports today often also include a “credit score” which is an indicator of your ability and willingness to repay the loan. The higher your credit score, the better risk you are.
- Lender Inspection Fees – If the lender requires certain inspections to take place before closing (particularly where new construction or recent repairs are involved), such inspection fees, payable to the lender or its designee, will appear in this section of the HUD-1.
- Mortgage Insurance Application Fee – There are often fees associated with processing an application for mortgage insurance. Some private mortgage insurers waive the application fee. This line of the HUD-1 may be used for other fees when the borrower is seeking an FHA-insured or VA-guaranteed loan.
- Assumption Fee – If you are taking over the existing mortgage loan on the home, there is often a charge associated with assuming the mortgage, called the assumption fee.
- Mortgage Broker Fee – This fee covers the costs of services of a mortgage broker if one is engaged by the borrower to help them shop for mortgage financing. Mortgage brokers typically present the borrower’s application to a variety of funding sources before helping the borrower make their final selection.
- Yield Spread Premium (YSP) – This is a fee that the funding lender may pay directly to the mortgage broker or other third-party loan originator. This fee is for securing a borrower on behalf of the funding lender at rate and terms agreed upon which may be higher than what is called “at par.” The fee is sometimes called a “Par-Plus Pricing” fee. While this fee is not paid by the borrower (it typically is shown as “POC” by the Lender”), it must be shown on the HUD-1 if the mortgage broker is receiving such compensation.