One way to cut closing costs is to eliminate some of the lender’s fees, particularly those labeled as junk fees. Not all fees a lender charges are always necessary, and some are inflated, reports ABC News. Sometimes a lender or mortgage broker pads the fees to increase the profit on a loan. While examining the individual fees is crucial, it's the final total that really matters.
Whether you deal with a large national bank, community bank or credit union, ask the reason for any fee you don’t understand. Loan fees vary from state to state and among lenders. Before applying for a mortgage, compare what at least two or three lenders offer in the way of loan fees. Besides shopping interest rates and loan terms, you can save money by shopping overall loan costs, points out ERA Real Estate. Examples of loan fees that might not be required include the application fee, processing fee, rate lock fee, broker's underwriting fee, document preparation fee, courier fee and wire transfer fee.
Review Closing Statements
When you apply for a loan, the lender is required to give you a good faith estimate within three days of accepting your loan application. Look over all the estimated closing costs listed on the form. Before closing, check the HUD-1 Settlement Statement for a list of your final closing costs. Pay special attention to the "items payable in connection with loan" section under Settlement Charges. Compare the numbers to those listed on the good faith statement. There shouldn't be much difference between the costs the two documents list. You're entitled to receive the HUD-1 form at least one business day in advance of closing. This still gives you time to ask questions before closing on the loan.
Borrowers are often charged for duplicate junk fees that are listed by different names. For example, an application and documentation preparation fee is essentially the same thing. In addition, since lenders aren't required to itemize loan charges, some lenders lump fees together and charge one, flat processing fee. Although not always the case, itemizing fees separately can be cheaper for the borrower, points out Bankrate. Another drawback related to loan processing fees is that they aren't tax deductible on your federal income tax return.
You can save money by negotiating loan fees you think are unnecessary. When you receive your good faith estimate, request an explanation of each of the charges it lists. If you ask, the lender may be willing to reduce or even waive some of the fees. Items that follow an 800 number under "items payable in connection with loan" on the GFE are those you have a better chance of negotiating. These may include the costs for your credit reports, appraisal fee, loan origination fee and points. But a full appraisal isn't always necessary and lenders set their own origination fees, which can vary. Some loan costs are also more negotiable if your credit score is high.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.