How much is reasonable (if anything) to pay to a lender for a mortgage application fee?

October 22, 2009 1:32 PM

How much is reasonable (if anything) to pay to a lender for a mortgage application fee?

The fiancé' and I have finally found the perfect house…a condo actually. The contract was accepted by the seller yesterday, and we are super excited! I went into the process benefitting from many of the great posts on the green that came before me. One of the things I did was get preapproved for financing of a 30 year fixed rate mortgage. Now that the contract has been accepted, the mortgage company wants to meet to complete the actual application. I was surprised when the representative told me that there is a $350 application fee. In your opinion / experience, is this outrageous? Should I find a different company? I’m not sure if it matters that I have excellent credit and can qualify for the most favorable interest rate offered. I am in Chicagoland. I am of course hoping to close by 11/30 for the tax credit, so time is of the essence to secure financing. Thanks in advance!

posted by mockjovial to work & money (15 comments total)

It is normal. Sometimes the fees are rolled into the closing costs, If the upfront money is the problem ask if it can be rolled in.
posted by Gungho at 1:35 PM on October 22

With all gentle intent: If you are surprised by this, you need to read up more.
posted by chesty_a_arthur at 1:41 PM on October 22

chesty_a_arthur - no offense taken. I've read a few sites...some I have seen say that there should be no fee at all, or that it should be less than $350, or that it can be applied towards the closing costs. A few people here at work cocked their heads at me when I said $350. I thought I'd kick this question out to a broader audience.
posted by mockjovial at 1:46 PM on October 22

This article warns about bad closing costs to watch out for. You'd do well to read that.
posted by disillusioned at 1:51 PM on October 22

The bank that our law firm represents in closings charges $250 for an application fee.

(with regards to that article disillusioned linked to, if we had a borrower who demanded to see receipts for everything and disputed every single charge, I would get very annoyed very quickly.)
posted by Lucinda at 2:05 PM on October 22

Is there a number attached to this fee on your good faith estimate? Like 801, 803, 1001 or something? I'm trying to compare to my mortgage and refi which happens to be in front of me, but there are so many goddamned fees and they all have different names from bank to bank.....
posted by tristeza at 2:13 PM on October 22

tristeza - I actually don't yet have the GFE. I am supposed to go meet the lender on Saturday to complete the full application. I believe that the GFE comes after that. The lender listed '$350 application fee' among the 'things to bring' that day.
posted by mockjovial at 2:17 PM on October 22

Wait, how did you get preapproved without seeing a GFE? The GFE is just that, an estimate - of your costs for the whole enchilada. You wouldn't apply THEN see the estimate.....
posted by tristeza at 2:27 PM on October 22

Hmm. I originally provided financial documents like 401k account balance statement and pay stubs and bank account information. They ran my credit score and said "based upon what we see here, we are willing to lend you up to x dollars at whatever the best rate is when you find a place." They gave me a certificate with the banks name on it that said the same thing. I supposed it put me in a better place as I was dealing with sellers. I included it with my offer. The bank/lender gave me a rough estimate of closing costs (like 3k or so, but never broke it down). Now that I have found a property, they are saying "come in to fill out the full application to complete the process." It looks like then that there is a difference between being pre-qualified, pre-approved, and actually filling out the full application. Does this help?
posted by mockjovial at 2:40 PM on October 22

We're working with a lender with a $595 application fee (goodmortgage.com), and they provided an official GFE on the HUD form up front, no money changing hands. We have another lender with no application fee who has not provided a HUD GFE.

My advice? It's a lot easier to budget with a GFE.
posted by infinitewindow at 3:06 PM on October 22

I think that in theory you're probably fine, but I sure as hell wouldn't complete an application before I saw a full-on GFE in writing, with all the detail they entail. No lender should charge for the GFE - the application, sure, I probably paid close to $500 to actually apply, but I got GFEs from like 4 banks for nothing at all.

The GFE itself is not a binding document, BUT it is indeed a "good faith estimate" that you can use to determine - to a relatively close but not perfect degree - what your ultimate costs will be.

ANYWAY, I'd ask for a GFE before I'd apply, seriously - it estimates/outlines EVERY cost and fee from application to monthly mortgage payment. Line by line, item by item, so you can compare costs with other lenders.

In fact, I'd go get GFEs from a few lenders right now and see who gives you the best deal. Or go to a mortgage broker and have them do it for you, then you can see yourself if $250 is reasonable or not!

IANARealtor. :)
posted by tristeza at 3:34 PM on October 22

My lender provided a legal GFE on a HUD form after I was pre-approved. My processing fee was $450. This was in line with what my realtor and a friend who is a real estate attorney expected.
posted by SpecialK at 3:43 PM on October 22

Also: The buyer who had made the highest offer on the home I'm under contract on right now had only come in with a pre-qualification, which includes just a qualification process and not the full nine yards of background checks and other things they can do without a lot of paper signed by you, not pre-approval letter. The deal fell apart when his financing was rejected when they actually ran the credit checks... they found out he wasn't very honest. Go figure. A pre-qual letter doesn't give you anything. A pre-approval should come with a GFE.

Also: I'm paying the appraisal, survey, and (pest, structural, and hvac) inspection costs up-front in cash to people I contracted with separately from the realtor or financing costs. I contacted them, they contacted my realtor to work out scheduling, and I'm paying them.
posted by SpecialK at 4:13 PM on October 22

Some sort of application fee (or up-front fee) is common...so that the bank knows you are serious. They do not want to spend their time and energy and resources on you if you're going to bail. The firm I work for charges $500.

Little-known fact: If the lender gives you the option to pay by credit/debit, they are not legally allowed to charge you until you sign the full application package.
posted by st starseed at 9:02 PM on October 22

Shop around for the best deal on a mortgage. I did well at my credit union. Better rate; fewer fees.
posted by theora55 at 9:53 AM on October 23 [1 favorite has favorites]