The federal Real Estate Settlement Procedures Act
requires the lender to provide you with a good faith estimate of the
fees due at closing. This document should be provided to
you within three days of your mortgage application.
The closing fees, also called settlement costs, will
cover almost every expense associated with your home loan and the
real estate purchase. Closing costs can range anywhere between 3%
and 5% of the home's purchase price, so you should compare the good
faith estimates between lenders before committing to a mortgage. It
is advised that borrowers should compare at least two or more
lenders based on their mortgage costs.
The fees you will find listed on your good faith
estimate usually include:
" Origination points " Discount points "
Property appraisal " Credit report fee " Lender's inspection
fee " Mortgage insurance application " Assumption "
Mortgage broker fee " Tax related service fee "
Application " Commitment " Rate lock " Processing "
Underwriting " Wire Transfer " Settlement, closing or escrow
fees " Abstract of title search " Title examination "
Document preparation " Notary " Attorney fees " Title
insurance " Recording " City or county tax stamps "
Transfer tax " Survey costs " Pest inspection " Condominium
association application " Prepaid interest, hazard insurance,
property taxes, mortgage insurance and flood insurance
The important thing to keep in mind that the good
faith estimate is only an estimate of your closing costs. While the
lender directly controls some of the fees, others are charged
according to the amount of work required to, for example, prepare
the title for transfer. While some expenses are variable, the taxes
and government fees should be the same from lender to lender.
The lender-controlled fees
The lender will control a variety of the fees in your
closing costs. Most are subject to negotiation. These include the
origination, discount, credit reporting, assumption, mortgage
broker, tax related service, application, commitment, rate lock,
processing, underwriting and wire transfer fees.
If you have questions about any vague or unusual fees,
make sure you ask them. Some mortgage companies like to throw in
what are called junk fees that are simply for the company's profit.
You can eliminate or reduce these fees if you know what should and
shouldn't be included in the costs.
The third-party fees
These are the fees for the services provided for the
lender. The lender is supposed to pass these costs directly on to
you without marking them up. They include the settlement, closing or
service fee, appraisal, abstract or title search, title examination,
document preparation, notary, attorney and title insurance.
You usually aren't able to negotiate these fees, but
if you see that one is much higher than the competition's fees, ask
for an explanation.
Fees that you control
Some of the third-party fees are in your control, for
example, the attorney's fees or settlement, closing or service fees.
In some states, closing is performed by an attorney, and in other
states, the closing is handled by a title office. You are able to
shop around for a closing-service provider. You are also expected to
purchase your own homeowners insurance.
What is non-negotiable?
Your local and state governments set the recording
fees, tax stamps and transfer taxes. You can't change these fees.
Ask lots of questions
Lenders often have trouble estimating title insurance
and government fees. You should scrutinize these items. If a lender
gives you a smaller estimate for title insurance of non-negotiable
fees, it could be inaccurate. National lenders have particular
trouble estimating the cost of title insurance due to the varying
customs regarding who pays what costs. In some areas, the seller
usually pays the title insurance, while in other areas, the buyer
pays the title insurance.
You can always negotiate with your seller to split or
pay a portion of the closing costs, points or fees. You don't have
to follow the local customs.
You can reduce the amount of prepaid interest due by
closing on or near the last day of the month. This is due to all
mortgage loan payments being due near the first of the month.
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