Which Mortgage Fees are Negotiable
Closing Costs : Which Fees Are Negotiable?
Going to a mortgage closing can be confusing enough with mountains of paperwork flying by every 5 seconds - the majority of homeowners simply sign all the documents without really knowing what they are putting their signature on.
Keep in mind that the "settlement fees" are of two types: 1) closing costs -standard, non-negotiable and 2) fees associated with the loan - non-standard and negotiable.
Educating yourself on the non standard fees can save you a lot of money since these are "negotiable" in the sense that you can bargain with the lender to lower or eliminate them when you detect, feel or suspect the fee is "frivolous or pure junk". See example: GFE Good Faith Estimate
Just the mere fact that you are aware of these fees will give you credibility to negotiate an probably lower your settlement costs - remember, mortgage brokers DO NOT have the fiducuiary obligation to EDUCATE you, only to abide by brokerage laws in their state.
Standard Fees
These are pretty much expected on all loans and you won't have much leverage regarding charges. Cost is only an average.
Appraisal Fee ( $300)
This is fairly standard, especially with FHA expect more scrutiny on the appraisal process. The higher the home value usually means a more expensive home appraisal ie.. larger home - more time put in by the appraiser = more expense
Underwriting Fee ( $250-$550)
This fee is based on an underwriter reviewing and evaluating your loan.
Credit report ( $25)
This is the cost for an official credit inquiry. Lenders usually use 3 bureaus, Experian, Tran Union, and Equifax. If the loan will be in you and your spouses names, you will be charged for 2 reports of course.
Flood Certification ( $23)
It must be determined whether or not your property is located within a flood plain. This service is automated and tells the lender if flood insurance will be a condition of the loan.
Tax Service Fee ( $80)
The lender will charge this fee to monitor the payment of your taxes from your escrow account.
Processing Fee ( $325)
This includes other process fees (excluding underwriting) needed to get your loan approved.
Non Standard Fees - Negotiable
Negotiate junk fees -These fees are best described as "frivilous" or "junk". This is where uninformed borrowers get blindsided, not even realizing they are being raked over the coals. Many of these fees you can be aware of long before closing so learn them well. It's difficult to challenge these at closing with the mountains of documents that you need to " hurry up" and sign as well as the confusing nature of the settlement statement, which of course doesn't help you understand HOW your being "overcharged". So...here is what to be aware of - negotiable fees on the GFE (good faith estimate) and at closing:
Origination Fee (.5% - 2% of loan amount)
Get fee info early - An origination fee is more common with subprime mortgage's and brokers many times explain that it is the cost of getting difficult loans through undewriting. Make sure your broker explains his origination fee structure on the very first meeting!
Is it a flat fee or a % of the loan amount? Typically it is 1% to 2% ofthe loan. You'ld be amazed at how easy it is to simply request that the broker drop his fee from 1% to .75%, many time just asking is enough to get it lowered. If the broker agrees to lower the origination fee, be careful they're not making up the difference by charging you somewhere else - this is VERY COMMON... VISIT: Yield Spread Premium
Application Fees (.5% - 2% of loan amount)
Pay only if you Lock -This fee is charged by many brokers so you simply don't "shop" loans. Indicate that you will pay the application fee at the time you lock your rate. Some mortgage companies won't do this - if not simply move on and find another lender. It is possible to have the lender pull your credit and send you a GFE without you paying the application fee - it happens at large mortgage companies like Flagstar Mortgage every day.
Commitment Fee (varies ..expect at least $300)
Very vague - Ask immediatly what this fee covers specifically. Processing and underwriting fees usually cover the in-house mortgage process adequately. Many times the loan officer can't even give you a "definite answer" as to what the commitment fee is... if that's the case move on to another lender or ask that it be removed as it is pure filler and profit for the loan officer.
Lock Fee (??)
Bogus - This is pure junk...you shouldn't have to pay a fee to lock your rate, it's "what they do".
Broker Fee (??)
Could be bogus -Only pay this if you are NOT paying an origination fee. The two are one and the same.
How Settlement Fees Appear On Your GFE
Here is an overview of the fees you will see on your GFE ( Good Faith Estimate). Some fees you'll have control over, others are not negotiable. These are average estimates based on a Nationwide, median priced house.
If you're curious, take a look at an actual filled out GFE Notice the "FHA Commitment Fee? That fee could have been negotiated out by shopping a few more lenders - overall this is the only "junk" fee associated with this potential loan.
**The number on the left is the line item on your GFE.
Closing Cost Fees You Can Negotiate
- 801 - Loan origination Fee - Usually 1-2% of the loan amount.
- 802 - Loan Discount - points that buy down your interest rate.
- 803 - Appraisal Fee - You can chose your own appraiser - 350$.
- 1107 -Attorney Fees - $0 to $500 -$600
- 1108 - Title Insurance - You can select your own title company and save a TON
- *** Fee you won't see but can negotiate - Yield Spread Premium
Closing Cost Fees You Can't Negotiate
- 804 - credit report - $20
- 809 - Tax related service fees, flood certification - $18 closing agent courier fee -$25
- 901 - pre-paid interest - this based on the pro-rated daily interest charge if you close before the end of the month. AVG $28-$40 per day
- 903 - Hazard Insurance Premium - $600
- 1001 - Reserve - Hazard Insurance Premium ( 2 months @ $50 per month ) $100
- 1002 - Reserve for Mortage Inurance Premium - $110
- 1004 - Taxes and Assessment (4 months @ $80 mo) - $320