May 2013 - Pay attention to mortgage loan processing fees
If you're planning to apply for a home loan, be sure to scrutinize the processing charges. By law, these costs must be disclosed to consumers. You'll first see them in a Good Faith Estimate (GFE), a statement of estimated costs that's filled out when you first apply for a home loan. At the end of the process, when you're sitting in the escrow office for the actual closing, the form will appear again. It will then include actual costs for processing and closing the transaction.
The standard form that's used at closing is called the "HUD-1" (also known as the settlement or closing statement). A few years ago the GFE was incorporated into the HUD-1, so now it's easier to compare the estimated costs at the beginning of the process to the lender's actual charges at the back end.
Setting up a home loan typically runs thousands of dollars, and mortgage payments often represent a huge slice of the family budget. So it pays to shop around and take a hard look at the processing fees. Here are some of the charges you may encounter on the HUD-1 settlement statement:
- Loan origination fee. Generally expressed as a percentage of the loan amount, this fee covers the lender's cost to evaluate and prepare your loan. Percentages vary among financial institutions, so this is a good candidate for comparison shopping.
- Title search and insurance. This is a legitimate charge for searching property records to establish legal ownership and identify outstanding liens. Charges for this service also vary, so be sure to compare lenders.
- Application fee. Even if your loan is denied, you'll be charged this fee. It's intended to weed out folks who are just "kicking the tires." Watch out for the same fee being charged more than once. It may be called an "underwriting fee" on one part of the statement and a "processing fee" further down the page.
- Document preparation fee. This fee is charged for drawing up legal documents. Again, make sure you aren't charged twice for this service: once by the lender and again by the escrow agent.
- Appraisal fee. If your property was recently appraised, a lender may be persuaded to waive this charge.
- Inspection fee. This charge covers the lender's cost to have the property inspected. Your job? Make sure the home was actually inspected. If it wasn't, why should you pay for an inspection?