By: Chiara Accardi
Online mortgage applications have become incredibly popular due to their convenience and speed. Applying for a mortgage from the comfort of your home, often with competitive interest rates and seamless digital processes, sounds ideal. However, it’s crucial to navigate this process with care, especially when it comes to understanding potential hidden fees that can increase the total cost of your loan.
Being aware of these fees upfront can help you avoid unexpected costs and feel confident that you’re getting the best deal possible. Here’s what to watch out for when applying for online mortgages.
Origination Fees
While many lenders advertise “no fees” or low interest rates, they often include origination fees that can catch borrowers off guard. These fees, which are essentially processing fees for creating the loan, can range from 0.5% to 1% of the loan amount. Though they might seem small, they can add up quickly, especially on larger loans. Some lenders may roll these fees into the loan, which can increase the overall cost over time.
What to do: Ask upfront if the lender charges an origination fee, and compare lenders to see who offers the lowest or no fee.
Application Fees
Some online mortgage lenders charge an application fee to cover the cost of processing your application. This fee might be charged whether or not you end up securing the loan, meaning you could lose this money even if your application is denied.
What to do: Look for lenders that either have no application fee or will refund it if your loan is not approved.
Underwriting Fees
Underwriting is the process through which the lender evaluates your creditworthiness and determines the risk of granting you a loan. Some online lenders charge underwriting fees, which can add several hundred dollars to your total closing costs.
What to do: Request a breakdown of all fees, including underwriting, and inquire if there’s any room for negotiation.
Rate Lock Fees
A rate lock ensures that your interest rate will not change between the time you are approved for the mortgage and when you close the deal, often for a set period (e.g., 30 or 60 days). However, some online lenders charge a fee for this service. If the market interest rates fluctuate, you may end up paying more if the rate lock expires, leading to a higher overall cost.
What to do: Before agreeing to a rate lock, understand the costs involved and choose a lender that offers this service for free or with a clear breakdown of fees.
Prepayment Penalties
Paying off your mortgage early sounds like a dream, right? But beware! Some lenders include prepayment penalties, which are fees charged if you pay off your loan early. While not as common as they used to be, these penalties can still appear in some online mortgage contracts. The rationale is that lenders want to recoup some of the interest they would have earned had you stuck to the original payment schedule.
What to do: Read the fine print of your loan agreement carefully to check for prepayment penalties, and aim to work with a lender that does not charge them.
Processing and Document Fees
Online mortgage applications might seem streamlined, but processing and document preparation still requires attention to detail. Some lenders pass the costs of these tasks on to the borrower in the form of additional fees, which can include administrative or courier fees for sending paperwork.
What to do: Clarify what’s included in the “processing” portion of your loan estimate. Ask for transparency regarding any extra fees related to document preparation or administrative costs.
Escrow Fees
If your mortgage includes an escrow account for property taxes and insurance, the lender may charge a fee to set this up. While escrow accounts can be helpful for managing payments, hidden escrow setup fees may surprise borrowers.
What to do: Ask about escrow account setup fees in advance, especially if the lender is handling payments for taxes and insurance.
How to Avoid Hidden Fees
You may feel lost in the minefield of fees when navigating the world of online mortgages. However, there are ways to protect yourself from these hidden costs:
- Compare Lenders: Shop around and request a complete list of fees from each lender before making your decision.
- Read the Fine Print: Carefully review loan estimates and closing documents, as fees may be hidden within the terms.
- Ask Questions: Don’t be afraid to ask your lender to clarify any fee you don’t understand or inquire about fee waivers.
- Negotiate: Many fees, especially application and origination fees, can be negotiable. If you’re working with a lender you like but don’t love the fees, try negotiating them down.
Final Thoughts
Getting an online mortgage doesn’t have to be stressful, and by being aware of these common hidden fees, you can protect yourself from any unpleasant surprises. Keep an open line of communication with your lender, compare costs, and always take the time to review your mortgage agreement carefully. By doing so, you’ll help yourself up for financial success and avoid unnecessary costs along the way.
Navigating these potential pitfalls will ensure that you get the premier deal, helping you move into your new home with peace of mind.
Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.
