• Mortgage loans don't come free. You'll have to pay interest on your home loan, which can add add hundreds of thousands of dollars to the price you pay over the life of your mortgage. But even the process of applying and qualifying for a mortgage loan entails several costs. One of the most expensive of these costs is the underwriting fee.
  
  

Underwriting Fees

• The underwriting fee covers a host of costs that your mortgage lender incurs when processing and approving your loan. According to the Federal Reserve Board, underwriting fees cost from $2,130 to $3,105 if you come up with a down payment of 5 percent of your home's purchase price.
  
  You can lower your underwriting fees -- and finance a smaller portion of your new home's price tag while doing so -- by scraping together a larger down payment. If you put down 10 percent of your home's final purchase price, for example, your underwriting fees should come out to $1,984 to $2,865, according to the Federal Reserve Board.
  
  

Evaluating Risk

• With underwriting fees, lenders are basically charging you for the work they do to evaluate the amount of risk you bring to the closing table. Lenders don't want you to pay your mortgage bills late, miss payments or eventually default on your loan. To determine how likely you are to do so, they'll evaluate factors such as your credit score, level of monthly debts and gross monthly income.
  
  If lenders determine that you're more likely, because of these financial factors, to default on your loan, they'll either refuse to lend you money or charge you higher interest rates to mitigate their risk.
  
  This evaluation process takes time. Lenders have to study financial documents, pull your credit and verify your employment. The biggest portion of the underwriting fees that they charge you pay for this time and effort.
  
  

Other Fees

• Underwriting fees also include smaller charges. Most lenders -- though they do vary -- include the costs of preparing loan documents, consulting with attorneys and calling on notaries to their underwriting fees. All these smaller fees add up, creating underwriting fees that soar into the thousands-of-dollars range.