It’s a good and smart idea to comparison shop for mortgages. The biggest expense most people will ever assume.
My Smart Borrowers don’t wait until after they’ve applied for a loan to see a lender’s list of settlement costs. My Smart Borrowers know the names of the charges and are not afraid to ask. If you went out to eat and saw a charge for an appetizer you did not order would you just pay for it? Probably not.
It’s important to ask questions to fully understand what is included in each fee. Your lending representative will react to your inquiry in a variety of ways, depending on their personality and deep desire to do business with you. It is not your right to argue the fee as much as it is the Lender’s or Loan Originators right to charge the fee.
It is your right to say “I do not agree with these charges and will consider taking my business elsewhere”.
Most settlement charges are legitimate. The origination fee, often expressed as a percentage of the loan amount, covers the lender’s work in evaluating and preparing your loan. And government recording and transfer taxes are always collected when a property changes hands.
But even one unnecessary charge could be a nice treat for your family, or a paid weekend getaway instead of more cash in the loan officer’s pocket. The lender is making the money on your interest payments. A long list of closing costs should get you interested in learning more. So if a lender talks around giving you a schedule of fee, head for the door. Good lenders will tell you their fees on a Good Faith Estimate of Closing Costs. Be smart and ask.
Here’s a list of possible junk fees:
Application Fee: This charge is intended to weed out the tire-kickers and is redundant if you are a serious borrower who applies for a mortgage. And if you are approved, you shouldn’t be charged twice for Application and Origination, which is really the same thing.
Document Preparation Fee: Often charged by a lender for drawing up the note and supporting documents. In Connecticut your Attorney prepares the deed, not the lender. So it could be another way to collect from an unsuspecting borrower. The lender needs the documents to secure the loan.
Document Review Fee: This reviewing the loan package when it is returned after closing. This look-see is rarely worth the money borrower’s pay for it. “It probably takes five minutes of some clerk’s time at most.
Tax Service Fee: This covers the cost of paying your property taxes on your behalf; that is, receiving the bill, cutting a check and mailing it to the tax collector. Most lenders pay taxes for all borrowers in the same jurisdiction in bulk by wire, the fee is usually excessive. Some lenders even levy this fee on borrowers who are paying their own taxes, saying that they must confirm that the taxes are being paid. .
Underwriting Fee: This charge is for reviewing your loan application to make certain you qualify. But this is the lender’s job. The lender is in business to underwrite loans, so this cost should be covered by the origination fee.
Processing Fee: Another cost that should be covered by the origination fee. After all, making a mortgage is nothing more that processing papers.
Inspection Fee: This covers examinations, often of new construction, by the lender or an outside inspector hired by the lender.
Warehousing Fee: Warehousing is normally lender lingo for packaging a number of loans together for sale to investors. But in this case, it’s either the lender’s charge for holding all the papers in a file until the transaction is closed, or holding the loan on a shelf until it is sold on the secondary market.
Courier Fees: This is for sending papers back and forth between the lender and settlement agent, either by courier or overnight delivery. This is not done much anymore since attorneys download pdf files at their own printing expense. The fee isn’t much, maybe $35 or $50. But the charge has become so routine borrowers are sometimes charged even if nothing was sent overnight or by courier. So ask to see a signed receipt before paying it.
Finally, as your treat for reading through, remember………
The Power of Prepayment. This is your reduction in loan lifetime achieved by adding additional principle (not tax) to your annual mortgage payments. Specify “Additional Principle Payment” on the check or Payment coupon. One extra month Principle payment per year will reduce your 30-year mortgage to about 23 years. Two extra months principle payments per year will reduce your 30-year mortgage to about 17 years. Check an amortization calculator to see how this works for you with different prepayment scenarios.
With a $300,000, 30 year, 4% mortgage costing about $1434 before property taxes, insurance and PMI, the additional payment may be the one of best investments you make. Consider the value of inflation when making your personal decisions as some people like the idea of paying today’s debts with tomorrow’s money adjusted for inflation. Understand how your income rises but your principle payment does not.
Copyright 2012 by David Carr All Rights Reserved