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Buying a home, especially for the first time, can be a daunting experience. There are endless credit checks, bank checks, employment checks, appraisals and more paperwork than seems to make sense. Adding to the angst associated with buying a home is the endless list of fees that are added to the cost of the mortgage. In addition to the interest rate quoted for the loan itself, lenders add other items to the closing costs, including appraisal fees, loan origination fees, credit report fees, document preparation fees, postage fees and all manner of other items that are often not even mentioned by the lender until closing time. The borrower often ends up suffering from a form of “sticker shock” at closing time, as the costs associated with closing on the loan are often substantially higher than expected. That may change, however, as several banks are about to introduce so-called “no fee” mortgages.
The concept of lending without a long list of additional fees isn't new; banks have been offering “no fee” home equity loans for several years. The continued boom in the national real estate market has prompted increased competition among lenders. Dropping the itemized fees from first mortgages is the latest attempt by several large banks to try to stay ahead of the competition. The fees, some of which are nothing more than added-in profit, will still exist. It just isn't possible to obtain a mortgage without a credit check or an appraisal of the property. What the “no fee” mortgages offer is an interest rate that is slightly higher than the standard mortgage. The fees are simply rolled into the total price, and the borrower has a much simpler set of paperwork at closing. Lenders think that by streamlining the process, overall costs can be lowered, and the savings can be passed on to the customer.
Those interested in purchasing a home with a “no fee” mortgage should ask around, as several large national banks are offering them now. Be aware that the name is a bit of a misnomer; “hidden fee” would probably be more accurate. Still, the process is simpler with a “no fee” mortgage, and there is definitely less “sticker shock” at closing time.