Closing Costs: What Your Lender Can Control and What Your Lender Can’t
When consumers start talking about mortgage loans, the two most important topics are almost always the prevailing interest rate for the loan program they’ve chosen and closing costs. Yes, there certainly are other considerations but in most every instance these two items get the most attention, and rightly so. After all, the interest rate on a loan program determines what the monthly payments will be. The interest rate can vary based upon various factors such as the loan term, down payment amount, credit scores and other factors.
With a phone conversation, I can give you an idea about where interest rates are and what your monthly payment would be based upon a particular loan amount and program. I’ll also let you know during that conversation that the rate is for informational purposes only and a rate lock won’t be available until at least your loan application has been submitted, certain documents reviewed, and a credit report has been obtained. If your loan has already been approved and documented and just waiting to order loan papers for closing, then the rate quoted on the phone can be locked in if that’s your choice.
Closing Cost Variables
Now, as it relates to closing costs, there are also some variables. First, there are two types of closing costs, recurring and non-recurring ones. Recurring costs are those such as your homeowner’s insurance policy, taxes and impounds where needed and interest paid at the closing table and each month thereafter. State and local governments set property tax rates, you and your insurance agent will review different policy options and your interest rate and term tell you how much interest will be paid each month. These are all recurring closing costs. The next group is non-recurring.
Non-recurring closing costs are one-time charges for different services required to close your loan. You’ll need title insurance, credit report, appraisal just to name a few. At your request, I’ll provide a list of potential closing costs you can expect at your settlement. This list will be included with your Loan Estimate. As part of your estimate, there will be a section dedicated to your closing cost details.
The list will include both lender and non-lender fees. Non-lender fees would be third party charges for things such as title insurance or settlement charges. Lender fees, ones for services the lender requires can include a credit report fee, an appraisal, a flood certificate and others. Some of the lender fees go to third parties, such as your credit report and an appraisal. Other lender fees go directly to the lender for services performed. For example, a lender can charge a loan processing fee because your loan goes through various stages and each stage requires some degree of overhead. An underwriting fee is a fee that covers the cost of making sure your loan application is in full compliance with the selected program.
Lender and Non-Lender Fees
With all types of fees, some of these fees your lender has control over, and some your lender does not have control. With lender fees, the lender decides which fees to charge and for how much. One lender might ask for a $500 underwriting fee while another asks for a $400 underwriting charge. Another lender might have a $300 document preparation fee while another has no such fee but does charge another. Lenders have complete control over their fees and as such are obligated to apply these fees universally to all applicants for the same loan program. Waiving a fee for one applicant while charging another for the exact program is against regulations. It’s considered discriminatory for a lender to selectively decide who has to pay a fee and who does not have to.
Fees that the lender has no control over are various third party charges. If your loan requires an attorney review your papers, the attorney sets the rate, not the lender. The lender has no control. A survey or abstract is priced independently of the lender. So too title insurance. If the loan needs mortgage insurance, the rate is predetermined by the insurance company, not the lender.
All of this information can be explained to you over the phone and documented and delivered to you via email or regular mail. I’ll be able to point out the different third party fees and the ones the lender will charge. Either way, when you go to your closing, you will have already been apprised of potential fees both early on.