Not All Mortgage Settlement Costs Are Set In Stone

Buying a home (especially for first-time homebuyers) can be quite overwhelming, what with all the costs and mounds of paperwork involved.  Unless your fortunate enough to pay for a house upfront entirely with cash, you already know you’ll most likely be stuck with a sizeable monthly payment for the privilege of owning a home. 

In addition, it may be somewhat of a shock to discover the vast array of fees (known collectively as closing costs or settlement costs) you’ll be expected to pay on closing day before the key to your new residence is handed over.

Fortunately, you don’t need to wait until the actual closing to discover the various fees and costs associated with your mortgage closing – perhaps lessening the shock factor just a bit.  That’s because you are entitled to see a breakdown of theses closing costs --contained within what is known as a good-faith estimate -- before the closing date.

By virtue of the Federal Real Estate Settlement Procedures Act, your lender is obligated to provide you with a good-faith estimate within three business days of applying for your mortgage.  However, this requirement is considered to be satisfied if the estimate is mailed within three business days of your application

The Format:
For the most part, the good-faith estimate is broken down into two different fee categories:  1) Origination Fees, and 2) Settlement, Closing or Escrow Fees as follows:

Origination Fees	Settlement, Closing or Escrow Fees
Property Appraisal	Title Examination
Lender Inspection	Notary fee
Discount	Attorney fee
Assumption	Abstract or title search
Commitment	Transfer tax
Underwriting	Survey
Rate Lock	Pest inspection
Tax-related service fee	Condominium application (for condos)
Mortgage insurance application	Recording fee
Application fee	Government entity tax stamps
Mortgage broker fee	Document preparation fee
Credit report	Title insurance
Wire transfer	Prepaid costs for hazard insurance
Processing	Interest, property taxes, mortgage insurance, flood insurance (where applicable)

And while you may think all of these costs are non-negotiable, think again.  Just as the name implies, they are estimates, and are not written in stone.  For example, while fees which fall under the category of “third-party fees” remain, more or less, the same between lenders, those costs controlled by the lender can vary widely, and are, indeed, negotiable.  The fee category which remains identical (non-negotiable) across lenders includes government fees and taxes.  These include tax stamps, transfer taxes, and recording fees.

Examples of third-party fees include the appraisal, title search, title examination, title insurance, and notary fees.  These costs are supposed to be passed directly to the borrower, without any markup.

Lender’s fees include the credit report, processing, rate lock, mortgage broker fees, origination fee, discount, underwriting and wire transfer fees.

In addition, there will sometimes be vague fees listed by some mortgage companies that you should question.  These are known as junk fees, and, with a bit of persistence, can be eliminated.

And, when you consider that closing costs usually run between 3% and 5% of the home’s sale price, it is well worth it to shop around and get good-faith estimates from at least three lenders to compare closing fees, and then question any items with sizeable discrepancies.