A loan application fee is money charged to apply for a loan. This ought to be viewed as distinct from a loan origination fee, which may be charged as part of a loan package, and usually equals about a percent of the loan. These two things are easily confused because origination fees are sometimes called application fees, but they are very different. In the former type, people will usually pay money upfront as they turn in an application. The origination fee gets added to total loan offer, instead of representing initial costs.
There are some experts in home lending that advise people to avoid paying a loan application fee or to consider other lenders if there is an upfront charge for applying for a loan. Others take a more moderate approach and suggest that there can be some good reasons to pay a loan application fee, especially if working with a broker who has access to many different loans. Most particularly, if people will have trouble obtaining loans because of imperfect credit scores, it might be worth paying a fee to elicit the extra help of a broker who could still locate loans that might fit. On the other hand, for applications for a single loan, people are better off doing some research first to make sure credit score and financial outlook will be perceived favorably before they make applications.
Most people can expect to pay anywhere from about $50-300 US Dollars for an upfront loan application fee. Part of this money is assessed to perform a credit report, and some lenders might accept a report that is generated from a reputable and independent source, like another bank, but not all do. The other part of this money, if exceeding usual credit report charges, is assessed so that a lender can search for specific loans that might work. It should be reiterated that this search might be wide or narrow in scope; a company charging top dollar to check credit only is making a lot of money on consumers. Moreover, the fee is paid whether or not people qualify for a loan.
There are many companies that do not charge an initial loan application fee, or might charge just a small amount for a credit check. Working with these companies first is typically advised before contracting with those charging a lot in application fees. Every customer will be different, though, and some see benefits in paying fees to apply for loans. It can get expensive when credit is poor and most loans will be denied.
No matter which way a potential borrower decides, most lenders will charge an origination fee for loans. This is typically about one point or percent of a total loan. On a $200,000 US Dollar (USD) loan, people might expect to pay a $2000 USD origination fee. This money will only be charged should a person accept the loan, which differs from an application fee charge.
