Here’s something to avoid when you’re buying a home: upfront application fees. Today, there are many mortgage lenders who 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.

This is a total scam and borrowers should not fall for it. It’s illegal for mortgage lenders to take an upfront fee, so some are skirting the rules by saying that it’s a credit toward an appraisal.
This fee is meant to hook the borrower in, so they don’t shop around with other lenders, 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 figure if the appraisal is ordered, the borrower will not shop their mortgage.
The good news is if the appraisal is not ordered or completed and the borrower backs out, by law they must refund that money to the consumer.

Our advice is don’t ever pay an upfront fee at application; the lender cannot require it and if you hold firm, they will recant. Eventually if an appraisal is required, the borrower will pay for it, later in the process– and only when the borrower gives his or her approval.