You can negotiate some of the fees your lender charges, plus shop around for the best deals on title insurance and settlement fees.
Study the good-faith estimate
A document called the good-faith estimate, or GFE, is invaluable when shopping around. The lender is required to furnish a GFE within a few days of your application. Like a library using the Dewey Decimal System, the GFE is arranged in numbered sections. The 800s and 1100s are the sections to concentrate on when you compare and negotiate.
The 800 section denotes the lender's fees. For example, 801 is the origination fee, 804 is the credit report fee and 808 is often the broker's fee. The 1100s denote title fees (among them, 1102 for the title search and 1108 for the title insurance premium).
The big money question
'Say, 'Please explain to me what those fees are,'' says Jessica Cecere, director of the Consumer Credit Counseling Service in West Palm Beach, Fla. Simple advice, but a lot of loan applicants don't follow it.
Even as the housing market has slumped in the last three years, fees have gone up, says Mike Kratzer, president of FeeDisclosure.com, a Bankrate company, which provides consumers with information to help cut their mortgage transaction costs.
He says appraisal fees have crept up recently, as lenders ask appraisers to do more thorough, time-consuming work. During the housing boom, lenders favored appraisers who did the job quickly and inexpensively. Above all, lenders favored appraisers who justified house prices that, in retrospect, were too high.
Now lenders want appraisers to document trends; not just prices for comparable homes in the past 60 days, but also whether prices are higher or lower than they were six or nine months ago. Kratzer says lenders are stricter about what appraisers can use for comparables. As a result, he says, some appraisals take more time, and therefore cost more.
When comparison shopping for a loan, pay attention to the origination and title fees. In most places, those are the costs that are subject to negotiation. Taxes aren't negotiable, and most prepaid costs, such as prorated interest, vary depending on the day of the month when you close the loan.
As for lenders' fees, Kratzer sees two opposite trends. Some lenders consolidate fees. Instead of charging separate fees for underwriting, processing and document preparation, they lump them into a lender's fee. Often, this lender's fee is more than the formerly separate fees added together. On the other end of the spectrum, some lenders have added e-mail, PDF and document-printing fees.
Watch for junk
'Question every cost. You don't just have to take it,' says Christopher Cruise, who trains mortgage brokers and loan officers. 'If it says 'administrative,' or 'doc prep' or 'miscellaneous,' it's just pure junk.'
Beware of double-dipping. Sometimes a broker will charge an origination fee (line 801) and a broker fee (usually line 808). 'It's the same thing!' Cruise exclaims.
Compare estimates
It's easy to get hung up on the individual fees and lose sight of the bigger picture. Different lenders give different names to their fees. That can be confusing. To simplify things, compare two or more estimates by adding up the dollar figures in each GFE's 800 section and compare those subtotals with one another. Do the same with the 1100 sections. If any subtotals stand out as unusually high or low, ask why.
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