When you’re buying a home and applying for a mortgage, avoid any upfront application fees. Today, some mortgage lenders are charging borrowers an upfront application fee, often $500-$600, when they apply for a mortgage. The lender tells the borrower that this fee will be credited towards the appraisal of the property.

Upfront application fees are a scam and borrowers should not fall for this tactic. It is illegal for mortgage lenders to take an upfront fee, but skirt the rules by calling it a credit toward an appraisal.
This fee is meant to lock the borrower in to that lender, so that they won’t shop around, since they’ve already invested money.

Those lenders want to order the appraisal right away, not because they care about the property value, but because they think if the appraisal is ordered, the borrower will not compare mortgage rates.

The good news is if the appraisal is not ordered or completed and the borrower backs out, by law the lender must refund that money to the consumer.

At Indigo Mortgage Colorado, our advice is to never pay an upfront fee at application; the lender cannot require it and if you hold firm, they will give in. When an appraisal is required (after the borrower has found the best interest rates and lowest fees to be committed to that lender), they will pay for the appraisal, but later in the process– and when the borrower gives his or her approval.