Unnecessary Closing Costs – Mortgage Tips to Save Money
Aubrey Clark
June 13, 2008
Unnecessary closing costs are charged to unsuspecting borrowers on almost all mortgages that close. Closing costs can be broken into three general categories, costs that the lender charges, costs that third parties charge and money that is paid on your behalf i.e. taxes and insurance. Due to the scope of this article, we are unable to go into detail in each category. However, there will be a link at the end of this article for a tutorial that does.
First and foremost, "no closing costs loans" do not exist. Like the medical field, mortgages have become an industry of specialized sub-contractors, each sharing a piece of the pie. Most mortgage companies have contract underwriting, title companies, escrow agents and some even sub-out the processing. All of these services represent a cost to the lender, all lenders. Also included in that list is the appraisers, inspectors, surveyors, state taxes, local taxes and of course there are the escrows, thus we have closing costs.
In days gone by, banks would hold their loans to collect the interest and make a profit; this allowed them to recoup the closing cost over time. This isn´t true anymore; banks now securitize their loans by selling them on Wall Street to raise capital to make more loans. Therefore, since the banks are not holding their loans to recoup the cost of originating the loan, the costs must be built into the interest rate or the closing costs. Now that we are clear on that, we can get on with the tips to avoid unnecessary closing costs.
Third Party Charges - When you take out a mortgage through a lender, nine out of ten times you will use their title company; this is the company that will charge you for the physical closing, the title and title insurance. For simplicity´s sake, almost all lenders will use the same title company. Due to the captive nature of the title company´s clients, namely you, they are free to charge whatever fees they like, and most of them do. Very few people scrutinize the title fees at the closing table; they are usually focused on the lender´s fees.
One way that you can avoid unnecessary closing costs is to open up the phone book and shop different title companies. Before shopping, ask your lender for a "fee sheet" from the title company he uses, he will know what you mean. Call different title companies and compare the rate sheets. Pay special attention to the title insurance, this is where most of the title companies like to over-charge. I have had borrowers save as much as $900 by using a different company.
Lender Charges - When you look at the good faith estimate before closing, and you´d better, you will see that all of the fees are grouped into sections, and each section has a corresponding set of numbers. For example, 800, 801, 802 and so on. For the most part, the lender only controls the 800 block of fees. This is the place where you will find their "junk-fees"; these are made up or unnecessary fees that the lender charges for additional profit.
Don´t get me wrong, there are some legitimate fees in the 800 block like the origination fee, which can be negotiated, the appraisal fee, the discount fee and the credit report fee. There are other fees that nearly all lenders will charge; these are the processing fees and underwriting fees. Processing is a real cost to the lender and is understandable, however most mortgage companies have their loans underwritten my M.I. companies and this really doesn´t represent a cost to them.
Unfortunately, these two fees are usually the "house fees" and are not negotiable. However, most of the other fees that you will find in the 800 block of the good faith estimate are negotiable or just made up for additional profit. For example: the Lender Inspection fee, what are they trying to say; that they are going to charge you a fee to inspect the loan before you close it?
Below you will find a list of the line item numbers that I consider "junk fees" or made up charges. When you look at the good faith estimate before you close, find the fees that are beside these numbers. I suggest that you demand that the lender remove most, if not all of these fees before you close. If the lender insists on charging a particular fee I would ask them for proof that it is a bona fide expense to them.
The fee numbers that I feel are unnecessary are: 805,806,807,808 (this is a real charge but it should have been included in the original quote), 810, 812 and 813. If you see any of these fees on your HUD before closing I suggest that you delay the closing until they are removed, unless, the lender can show you proof that these fees really exist. If you‘re interested in finding out more ways to avoid unnecessary closing costs you will find our tutorial interesting
Aubrey Clark is an editor for Lendfast.com, a Nationwide Home Mortgage Loan Company and lives in Atlanta Georgia with his wife and four children.
First and foremost, "no closing costs loans" do not exist. Like the medical field, mortgages have become an industry of specialized sub-contractors, each sharing a piece of the pie. Most mortgage companies have contract underwriting, title companies, escrow agents and some even sub-out the processing. All of these services represent a cost to the lender, all lenders. Also included in that list is the appraisers, inspectors, surveyors, state taxes, local taxes and of course there are the escrows, thus we have closing costs.
In days gone by, banks would hold their loans to collect the interest and make a profit; this allowed them to recoup the closing cost over time. This isn´t true anymore; banks now securitize their loans by selling them on Wall Street to raise capital to make more loans. Therefore, since the banks are not holding their loans to recoup the cost of originating the loan, the costs must be built into the interest rate or the closing costs. Now that we are clear on that, we can get on with the tips to avoid unnecessary closing costs.
Third Party Charges - When you take out a mortgage through a lender, nine out of ten times you will use their title company; this is the company that will charge you for the physical closing, the title and title insurance. For simplicity´s sake, almost all lenders will use the same title company. Due to the captive nature of the title company´s clients, namely you, they are free to charge whatever fees they like, and most of them do. Very few people scrutinize the title fees at the closing table; they are usually focused on the lender´s fees.
One way that you can avoid unnecessary closing costs is to open up the phone book and shop different title companies. Before shopping, ask your lender for a "fee sheet" from the title company he uses, he will know what you mean. Call different title companies and compare the rate sheets. Pay special attention to the title insurance, this is where most of the title companies like to over-charge. I have had borrowers save as much as $900 by using a different company.
Lender Charges - When you look at the good faith estimate before closing, and you´d better, you will see that all of the fees are grouped into sections, and each section has a corresponding set of numbers. For example, 800, 801, 802 and so on. For the most part, the lender only controls the 800 block of fees. This is the place where you will find their "junk-fees"; these are made up or unnecessary fees that the lender charges for additional profit.
Don´t get me wrong, there are some legitimate fees in the 800 block like the origination fee, which can be negotiated, the appraisal fee, the discount fee and the credit report fee. There are other fees that nearly all lenders will charge; these are the processing fees and underwriting fees. Processing is a real cost to the lender and is understandable, however most mortgage companies have their loans underwritten my M.I. companies and this really doesn´t represent a cost to them.
Unfortunately, these two fees are usually the "house fees" and are not negotiable. However, most of the other fees that you will find in the 800 block of the good faith estimate are negotiable or just made up for additional profit. For example: the Lender Inspection fee, what are they trying to say; that they are going to charge you a fee to inspect the loan before you close it?
Below you will find a list of the line item numbers that I consider "junk fees" or made up charges. When you look at the good faith estimate before you close, find the fees that are beside these numbers. I suggest that you demand that the lender remove most, if not all of these fees before you close. If the lender insists on charging a particular fee I would ask them for proof that it is a bona fide expense to them.
The fee numbers that I feel are unnecessary are: 805,806,807,808 (this is a real charge but it should have been included in the original quote), 810, 812 and 813. If you see any of these fees on your HUD before closing I suggest that you delay the closing until they are removed, unless, the lender can show you proof that these fees really exist. If you‘re interested in finding out more ways to avoid unnecessary closing costs you will find our tutorial interesting
Aubrey Clark is an editor for Lendfast.com, a Nationwide Home Mortgage Loan Company and lives in Atlanta Georgia with his wife and four children.
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