What are the closing fees and why do they vary from lender to lender?
A home loan often involves many fees, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of its fees, but it is more difficult to tell which lenders have done their homework and are providing a complete an accurate estimate. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates. After you apply for a mortgage, the Federal Government requires all lenders to give you a "Good Faith Estimate of Settlement Costs". However, you'll need to ask questions about fees before you apply so that you can be sure that you are choosing the lender that's best for you. Take the time to review the fees of lenders you are considering with a side by side comparison. The time you spend will save you money. To evaluate fees properly, consider grouping them as follows: Third Party Fees Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees. Third party fees are usually fees that the lender will collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee and a title company or an attorney is paid the title insurance fees. Typically, you'll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see the some lenders absorb minor third party fees such as the flood certification fee, the tax service fee or courier/mailing fees. Taxes and other unavoidable fees Fees that we consider to be taxes and other unavoidable fees include: State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don’t quote you fees that include taxes and other unavoidable fees, don't assume that you won't have to pay it. It probably means that the lender who doesn't tell you about the fee hasn't done the research necessary to provide accurate closing costs. Lender Fees Typically fees such as origination fees or points, discount points, processing/administration fees, underwriting fees and document preparation fees are really fees that are kept by the lender to meet their profitability requirements. If the cost estimate you receive includes points of any kind and they are not expressed as a dollar amount, remember that each point is 1 percent of the loan amount. This is the area of fees that you should compare very closely from lender to lender before making a decision.
Other Fees that might be required at closing
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items. One of the more common prepaid items is called "per diem interest." Most mortgage loans have payments due on the first of the month. If your loan is closed on any day other than the first of the month, the lender may ask you to pay interest from the date of closing through the end of the month at closing. For example, if the loan is closed on June 15, the lender may collect interest from June 15 to June 30th at closing. This also means that you won't make your first mortgage payment until August 1st. This charge should not vary from lender to lender, and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed, it is simply a matter of when it will be collected. If the lender requires that you establish an escrow account, sometimes called impounds for taxes and insurance, they may also require that you make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due. If your loan requires mortgage insurance and all or part of the insurance premium must be paid up front, this will also be a required prepaid item. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
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