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When you finance the purchase of a home — whether it be a primary residence, second home, or investment property — you’ll usually pay closing costs. A portion of those closing costs are mortgage lender fees for services charged directly by the financial institution loaning you the money. These are separate from third-party fees, such as home appraisal and inspection charges, that pay companies other than your lender.
Between third-party and lender fees, you can expect to pay around 2% to 5% of the loan amount for your total mortgage closing costs. The exact amount will depend on your location and loan details, though.
Read more: Closing on a house — What to expect and how to prepare
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When you apply for a mortgage, your lender will provide you with a Loan Estimate that details the costs to close the loan, including mortgage lender fees. The fees charged by your lender are found under the sections labeled “loan costs” and “other costs” on page 2 of the Loan Estimate.
Typically, mortgage lender fees are labeled:
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Application fee
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Origination fee
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Processing fee
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Credit report fee
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Underwriting fee
Reviewing these fees with each lender when you shop for a mortgage is important. Sometimes, your lender will itemize the fees early in the process so you can see exactly what the charges include. In other cases, your lender will provide an all-inclusive fee or combine a couple of fees under one umbrella, such as credit report and underwriting costs under an origination fee. But when you receive your Loan Estimate a few days after submitting your official mortgage application, these fees will be broken down so you see how much each one costs.
In addition to lender charges, other typical closing costs may include an appraisal fee, home inspection fee, recording fee, title insurance, prepaid interest, homeowners insurance, property taxes, and private mortgage insurance (PMI).
Dig deeper: What is a mortgage application fee, and do I have to pay it?
Yes and no. A discount point is one example of a lender fee (because any money paid goes to the mortgage lender and not a third party), but it’s an optional charge. You do not have to pay for discount points if you choose not to. This contrasts with other lender fees, such as an origination or credit report fee, which may just be part of a lender’s payment structure.
Here’s how discount points work: Lenders offer borrowers the option to pay additional money to lower their interest rate — these may be referred to as discount points, mortgage points, or just points. Generally, one discount point costs 1% of your loan amount, lowering your mortgage rate by 0.25%. For example, if you have a $400,000 mortgage loan with a 6.5% interest rate and decide to pay for one discount point, you’ll pay $4,000 at closing to lower your rate to 6.25%.
Mortgage lender fees typically cost 1% to 2% of the total loan amount, though that number could be a little higher or lower depending on various factors. Costs vary from one lender to another regarding how much they charge and which services are included in the fee.
For example, the loan origination fee is usually 0.5% to 1%, which may or may not encompass other charges, such as application and credit report fees. Some lenders charge as much as $500 just for the application fee, while other lenders waive that cost.
Mortgage lenders may offer a “no-cost” loan, but that often means the company wraps closing costs into your mortgage loan balance, you pay a slightly higher interest rate, or both.
Dig deeper: What if you can’t afford closing costs? 6 ways you can still buy a home.
Buyers usually cover the mortgage lender fees since they are the ones financing the home, but closing costs are negotiable between the buyer and the seller. Depending on the loan program and whether the purchase is for a primary residence or an investment, sellers can contribute a maximum of 3% to 9% of the purchase price in mortgage closing costs.
You can also ask your mortgage lender to waive or lower some of their fees. If you have a high credit score, you’re more likely to succeed in reducing some lender fees since a lender may be less concerned about a potential default.
If there’s limited mortgage activity, which means lenders are competing for borrowers, they may be more likely to offer to pay for some of the costs of the loan to get your business. However, you should compare mortgage rate offers because sometimes a lender will charge a slightly higher rate to get compensated for loan costs.
Read more: How long does it take to close on a house?
Yes, your lender may allow you to wrap your closing costs — including lender fees — into your loan. However, it may be better financially to pay closing costs up-front (if you can afford to do so) or to negotiate for the seller to pay some of your expenses, depending on how long you plan to keep the house.
If you wrap your closing costs into your mortgage, you will add that amount to your loan balance and often pay a slightly higher interest rate. This means you will pay interest on the closing costs since they’ll become part of your principal, which would not be necessary if you paid cash on closing day.
Learn more: Seller credits — What they are and how they work
Yes, borrowers can negotiate to reduce certain closing costs, including lender fees. Your mortgage lender will give you a Loan Estimate within three business days of receiving your official loan application. This document will show an itemized list of all of your closing costs.
Some charges, such as the home appraisal fee and property taxes, cannot be negotiated. But the lender may be willing to reduce some lender fees, such as application, underwriting, or origination fees. When you receive the Loan Estimate, walk through each charge with your lender to see if they will decrease or waive any of these charges. If the company agrees to lower any fees, double-check those charges are excluded from the Closing Disclosure you’ll receive before closing day.
Dig deeper: Closing costs — A guide to how they work and what you’ll pay
While most mortgage lenders charge lender fees, some — including Ally Home and Better Mortgage — do not.
Typically, mortgage lender fees range from 1% to 2% of the loan amount. You should shop around with other lenders if you are quoted a higher fee.
You may be able to avoid lender fees in one of two ways: Either you can find a mortgage lender that doesn’t charge lender fees, or you can negotiate with the seller or lender to pay the fees for you.
Yes, most lenders charge fees for a refinance like they do when you buy a house. However, some lenders offer mortgage loans without lender fees. Others may reduce lender fees for a refinance, particularly for a borrower with good credit who is refinancing with the same lender that holds their current home loan.
This article was edited by Laura Grace Tarpley.