Where you’ll pay the lowest loan fees

September 30, 2010 | 52 Comments

North Carolina is the place to be for the lowest closing costs on your home loan. But no matter where you choose to reside, it’s likely there are hidden ‘junk’ fees you should demand be removed from the total.

By Bankrate.com

Charlotte, N.C.  (© ThinkStock/SuperStock)

Charlotte, N.C.

For the second straight year, those are the most expensive states in which to get a mortgage.

Nationwide, the average origination and title fees on a $200,000 mortgage this year totaled $3,118, according to Bankrate’s annual survey of closing costs. The fees in the survey don’t include taxes, insurance or prepaid items such as prorated interest or homeowner association dues.

Fees in New York City were highest, averaging $4,016 in Bankrate’s survey. Houston came in second, with fees that averaged $3,975. After that came Buffalo, N.Y., with fees averaging $3,845, and then Miami, at $3,683.

North Carolina had the least expensive closing costs in the survey, at an average of $2,650. The previous year, Indiana took the last spot.

The annual survey of online lenders is conducted by obtaining fee estimates for a $200,000 mortgage in each state’s most populous city. Bankrate also surveyed Springfield, Ill.; Buffalo; San Francisco; and Sacramento, Calif., just in case Chicago, New York and Los Angeles were unrepresentative. It turns out that it didn’t matter much. Cities in the same state weren’t far apart in total closing costs.

Why New York is tops
New York tops the list for the fourth year in a row for two reasons. First, origination fees are swollen by taxes that the state levies directly on lenders, which are passed along to consumers. Second, lawyers customarily conduct closings in New York. Many closings are attended by at least three attorneys (for the buyer, seller and lender). In some other states, especially in the West, closings are conducted by title agents and escrow officers who charge less than lawyers.

When comparison shopping for a loan, pay attention to the origination and title fees. In most places, those are the costs that are subject to negotiation. Taxes aren’t negotiable, and most prepaid costs, such as prorated interest, vary depending on the day of the month when you close the loan.

Study the good-faith estimate
Even as the housing market has slumped in the last three years, fees have gone up, says Mike Kratzer, president of FeeDisclosure.com, a Bankrate company, which provides consumers with information to help cut their mortgage transaction costs.

He says appraisal fees have crept up recently, as lenders ask appraisers to do more thorough, time-consuming work. During the housing boom, lenders favored appraisers who did the job quickly and inexpensively. Above all, lenders favored appraisers who justified house prices that, in retrospect, were too high.

Now lenders want appraisers to document trends; not just prices for comparable homes in the past 60 days, but also whether prices are higher or lower than they were six or nine months ago. Kratzer says lenders are stricter about what appraisers can use for comparables. As a result, he says, some appraisals take more time, and therefore cost more.

As for lenders’ fees, Kratzer sees two opposite trends. Some lenders consolidate fees. Instead of charging separate fees for underwriting, processing and document preparation, they lump them into a lender’s fee. Often, this lender’s fee is more than the formerly separate fees added together. On the other end of the spectrum, some lenders have added e-mail, PDF and document-printing fees.

“You would think that with technology, they would charge less, not more,” Kratzer says.

A document called the good-faith estimate, or GFE, is invaluable when shopping around. The lender is required to furnish a GFE within a few days of your application. Like a library using the Dewey Decimal System, the GFE is arranged in numbered sections. The 800s and 1100s are the sections to concentrate on when you compare and negotiate.

The 800 section denotes the lender’s fees. For example, 801 is the origination fee, 804 is the credit report fee and 808 is often the broker’s fee. The 1100s denote title fees (among them, 1102 for the title search and 1108 for the title insurance premium).

Watch for junk
“Question every cost. You don’t just have to take it,” says Christopher Cruise, who trains mortgage brokers and loan officers. “If it says ‘administrative,’ or ‘doc prep’ or ‘miscellaneous,’ it’s just pure junk.”
Even mortgage executives, when e-mailing among themselves, refer to these fees disparagingly. According to the August issue of Conde Nast Portfolio, Countrywide executives referred to some fees as “junk” and “garbage.” When ordering a low-cost mortgage for a politician, the executives would specify “no junk” or “no garbage fees.”

Ordinary consumers didn’t get the same consideration.

Beware of double-dipping. Sometimes a broker will charge an origination fee (line 801) and a broker fee (usually line 808). “It’s the same thing!” Cruise exclaims.

The 1100 section of the GFE, for title charges, warrants scrutiny, too. If any fee seems unjustified, ask that it be waived.

Compare estimates
It’s easy to get hung up on the individual fees and lose sight of the bigger picture. Different lenders give different names to their fees. That can be confusing. To simplify things, compare two or more estimates by adding up the dollar figures in each GFE’s 800 section and compare those subtotals with one another. Do the same with the 1100 sections. If any subtotals stand out as unusually high or low, ask why.

“I’m pretty critical, in general, of borrowers who don’t ask questions,” Cruise says. “For the most part, they don’t.”

Vote for lower fees
In some cases, there’s little that you can do about high closing costs except via the ballot box, because state governments mandate expensive title insurance. The prime examples are Texas, Florida and New Mexico. All three states’ average title charges are hundreds of dollars more than the national average.

These three states have something in common: Their title insurance rates are promulgated by the insurance department — that is, the state government sets the fees for title insurance premiums, title searches, or both. It’s illegal to charge less than the promulgated rate.

By Holden Lewis, Bankrate.com


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