Loan Application fee definition

Writer and editor - Bryan Robinson | Updated on 2023-01-11

What is an application fee?

An application fee is a type of fee charged by a lender to cover the cost of processing a loan application and it is generally non-refundable, even if your loan application is ultimately approved. This fee is typically charged by mortgage lenders, but can also be charged by other types of lenders, such as auto lenders and student loan lenders. Application fees can vary depending on the type of loan and the lender, but are typically a few hundred dollars.

The application fee can vary depending on the type of loan you are applying for, as well as the lender. For example, applying for a small business loan from a bank may come with a $250 application fee, while applying for a mortgage may come with a $75-$300 application fee.

If you are considering taking out a loan, be sure to ask about any associated application fees so you can factor them into your overall costs.

The fee is typically a flat fee, but may be a percentage of the loan amount.

The fee is typically a flat fee, but may be a percentage of the loan amount. The fee may be refundable if the loan is not approved, or it may be applied to the closing costs of the loan.

The application fee is separate from any other fees charged by the lender, such as origination fees, appraisal fees, document preparation fees, and underwriting fees.

Application fees are common with mortgage and business loans but are less common with personal loans.

The fee is used to cover the cost of the lender’s underwriting and processing the loan application.

Private mortgage insurance, or PMI, is insurance that borrowers are required to purchase when they get a mortgage. If you’re buying a home and putting less than 20% down, you’ll be required to purchase PMI as a rider to your mortgage. The added cost of PMI varies, depending on the size of the down payment and credit score. You can expect to pay about 0.5% – 1% of the loan amount annually for PMI.

For home buyers making a small down payment, the add-on of additional insurance called private mortgage insurance, or PMI could make their monthly payments much higher than expected – possibly forcing them to buy a less expensive home than they had hoped for.

The Mortgage Bankers Association annual survey showed that buyers who put less than 20 percent down on their home paid an average of $930 per year in PMI premiums. Those who put between 3 and 5 percent down paid an average $1,052 per year in fees. (See also: The True Cost of Mortgage Insurance.)


The fee may also be used to cover the cost of a credit report.

The credit report is used by your lender to help determine if you are a good candidate for a loan. A credit report is a record of your financial history that includes information about your credit card balances, payment history, and outstanding debt.

How much is the fee?

The fee is typically a flat fee of $50-$100, but may be a percentage of the loan amount.

The application fee may be waived if the borrower meets certain criteria, such as signing up for automatic payments or agreeing to have their loan balance paid off early.

The fee may also be waived if the loan is approved.

The amount of the fee varies by lender, but it’s typically a few hundred dollars. Some lenders will waive the fee if you agree to take out a larger loan, or if you meet certain criteria, such as having a good credit score.

What is the refund policy?

The refund policy will vary by lender, but the fee is typically non-refundable.

While the application fee is non-refundable, some lenders may offer a credit towards future services if the loan is not approved. For example, if you apply for a mortgage through a bank and are not approved, the bank may offer you a credit towards future services such as refinancing or home equity loans.

Related reading: Documentation fee page.

How can I avoid the fee?

Some lenders may offer a no-fee loan option.

Some lenders may offer a no-fee loan option. Be sure to compare offers to find the best deal for you.

Some lenders may waive the fee for certain borrowers, such as those with good credit.

Bryan Robinson

Bryan Robinson
Writer and editor


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