Financial institutions of all kinds, be they banks or mortgage firms, charge a large number of fees before a loan is processed and the funds forwarded to the recipient. Some of these charges are to be expected, while others seem patently ridiculous. These innumerable mortgage closing costs, in many cases, are a result of financial institutions padding the bill in order to realize a greater profit. Often, the companies offering the lowest interest rates will add the greatest number of closing costs, negating the savings one might ordinarily expect.
It is federal law that financial institutions must provide those applying for a loan with a written “Good Faith Estimate,” detailing all fees and charges. However, one should remember that the optimum word is estimate. By the time a loan reaches its final closing date, the lenders are free to raise or lower the charges. The former occurs quite often, the latter virtually never.
Mortgage closing costs usually run into thousands of dollars, depending upon the amount of the loan, and as a rule they hover somewhere around five percent of the loan total. While many of these costs to go to third parties for services rendered in the processing of the loan, a larger number go straight into the pockets of the financial institution. More and more often, customers are charged for what one would consider the normal costs of doing business.
Examples of closing costs paid to third parties would be appraisals, credit reports, title searches and insurance, courier fees, and closing fees. In some cases, there will also be charges for attorneys and surveyors. If one lives in a flood plain they can expect charges for flood insurance. If a down payment is too low, or the amount of the loan too high, one can also expect to pay for private mortgage insurance and up to a year’s worth of homeowner’s insurance.
This is just the beginning. Lenders also tack on mortgage closing costs for loan origination fees, underwriting of the loan, document preparation, and administrative costs. There can also be funding fees, escrow fees, settlement fees, and even notary fees. In truth, the list of mortgage closing costs that might be charged by a lender is virtually endless.
After receiving a written, “Good Faith Estimate,” those seeking a loan should check with other financial institutions to see if a better deal is available. One should also confront lenders who appear to be adding on exorbitant charges, especially for administrative costs, document preparation, courier fees, and notarization. These items largely consist of typing up the papers and mailing them. A small surcharge is reasonable. Several hundred dollars or more is not.
Also, one should ask the lender for receipts from appraisers, surveyors, title companies, attorneys, and insurance companies before signing on the dotted line. It is wise to check for large differences between what was actually billed by third party providers and what the lender adds in as mortgage closing costs. If the financial institution refuses to do provide this information, they are likely overcharging for their own benefit. In this case, it is best to sign nothing, walk out of the closing, and find a more reputable lender.
