Lender Fees and required prepaid charges:

Lender fees are the actual expenses that the lender incurs in the processing  of your loan. These fees generally are charged for items such as origination costs, appraisal,  underwriting,  processing,  document  preparation  and  administrative costs, etc.  The  buyer  should  always  request  that  the  lender  or  mortgage  broker explain all fees prior to attending the closing, as these fees may add significant costs to your closing. After an initial meeting with a mortgage professional, the borrower will receive a Good Faith Estimate (GFE) that shows an estimate of the closing costs associated with the mortgage application.

Unless  the  seller  agrees  to  pay  for  any  lender  fees  in  the  purchase  sales agreement,  these fees are always charged to the buyer. Generally,  lender fees have  been  estimated  to  cost  between  2  and  3  percent  of  the  amount  being borrowed, however the fees vary widely depending on the type of mortgage loan chosen by the borrower.

If the borrower chooses to pay Loan Discount points, this cost would be disclosed as lender fees as well. Loan Discount points (commonly just called “points”) allows a borrower  to buy down the interest  rate by prepaying  a fixed amount  to the lender at closing. When comparing mortgages,  it is prudent for the borrower to ask the lender to explain  how the payment  of points may or may not be cost effective for the particular loan situation of the borrower.

Prepaid charges are for items related to the mortgage that the lender requires to be paid in advance at closing. Typically, prepaid items consist of daily interest due to bring you current to the first of the month; costs for mortgage insurance and hazard insurance and/or flood insurance; and initial reserve amounts needed by the lender to establish an escrow  account  for the payment  of future insurance  premiums,  real estate taxes, and homeowners’ association dues.