Closing Costs - Understanding Mortgage Lender Settlement Fees - part 1

by Anthony Kirlew

When you purchase or refinance your home, you will have to pay settlements fees. A portion of these fees will be paid to your mortgage company (a.k.a. broker, bank, lender). These fees are broken down into two types of fees; closing costs, or fees associated with the loan, pre-paid items which include interim interest and tax and insurance escrows.
The fees charged by your lender are just a portion of the total closing costs, but if you don't watch out they can add up quickly. Let take a look at which lender fees are considered standard, which are not standard, and which are "negotiable".

First, are standard fees, or fees that appear on almost every loan:

Appraisal Fee ($250-$400+): Nine times out of ten the underwriter will require an appraisal to determine the value of a home. With the increased "intelligence" of automated underwriting and automated valuations, we see more transactions where appraisals are not required and I think this is the growing trend with the increased relevance of electronic property databases. The price depends on the type of appraisal required and the value of the home (higher home value = larger house = more work = higher priced appraisal).

Underwriting fees ($250-$595): As it implies this is the fee allocated to having your loan reviewed by an underwriter. Some banks call this a commitment fee, which is traditionally the name given to a "junk" fee.

Credit Report ($10-$35): You should expect a charge for your credit report. Often the charge for a couple is twice the cost of a single individual, and for obvious reasons.

Flood Certification ($15-$30): This is the cost of the automated service that tells the lender if the subject property is located in a flood plain or not. If it is, it may require flood insurance.

Tax service fee ($75-$90): This is a fee that covers that cost of the lender monitoring the payment of your property taxes.

Processing Fee ($250-$595): Similar to the underwriting fee, this is the cost of processing your loan.

Next we have Non-Standard Fees, which are charged in conjunction with some types of loans, or shouldn't be charged at all.

I want to address a term that you might hear and that is "junk fees". These usually refer to fees charged by lenders that are frivolous, or pure profit. The challenge in trying to explain this to the layperson is that we do not want to indict a lender just because of a term that they use, but we just want to make you aware of all of the different types of fees out there. The key is you should not see a fee listed in EVERY blank of the lenders fees on the Good Faith Estimate, as this would indicate an abundance of fees. With that, here are some additional fees you might see on your Good Faith Estimate:

Origination Fee (1% of loan amount): This is a charge normally associated with sub-prime mortgage. These loans traditionally require more work than a standard (good credit) loan and this is a fee to compensate for this. Lenders will be upset if we say this is negotiable, but the reality is that almost everything is negotiable. If you can find someone to do your loan and not charge this, there is a good chance your rate will be higher so they can make the money else where (the bank pays higher commissions when loans are sold at higher rates). The down side is that if you negotiate this fee away, you may take the incentive away from your loan officer to get the job done and you may not end up getting your mortgage.

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Closing Costs - Understanding Mortgage Lender Settlement Fees

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