I was sitting down with a client this week going over her Good Faith Estimate and she asked me about the "Processing Fee" that was part of the lender fees. She asked me:
"What is that Processing fee and do I have to pay it?"So I thought there may be more people who have the same question.
In my experience, I have always seen lenders charge a mortgage processing fee - and it usually ranges from $400 to $600. The fee typically goes to pay for the salary or the outsourced service of actually "processing" the file. There is quite a bit of paperwork that goes into getting a loan actually ready before it goes into underwriting - things such as making sure all of the numbers are right, ordering FHA paperwork information, speaking with insurance companies about the change in lenders and a handful of other tasks.
All told, I would say there are probably between 10 and 20 separate tasks that must be done on a file before it goes to underwriting.
In some mortgage companies, they "outsource" the processing -- where the person who actually processes the file is not an employee of the company, but a contractor. Typical fees that I see from outsourced processing companies are in the $500 to $600 range. In other mortgage companies where they have an "in-house" processor, I have seen the processing fee be slightly lower - but it is different for each company.
Good Processors and Bad Processors
As with loan officers (or I guess with anything in life) there are good processors and bad processors. Typically, you as the consumer will not ever meet the processor (although you may speak with them via phone) so it is usually almost impossible to tell a "good" processor from a "bad" one unless you are the loan officer. But ask any loan officer out there - a good processor can make all the difference. It has been my experience that a good processor who charges $600 is well worth the money versus a bad processor who charges $400.
So, yes - processing fees are for an actual service that someone provides - and as long as the fee is generally in the range of $400-$600, I would consider it to be reasonable. Anything higher than $600 and you might want to ask your loan officer for an explanation of why the fee is so high.
Justin McHood is a loan officer living in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, Zillow, ActiveRain, Localism or LinkedIn and he is happy to answer any mortgage-related questions that you may have.