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Buyer Tips
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For the most part, lenders’ application fees are reasonable.
But some lenders have been getting creative with fees, warned
attorney Howard Newman. Some lenders will entice
borrowers with a low application fee. They later make up
for this by charging “junk fees” that show up somewhere
else as part of the closing costs.
Closing costs are fees and charges tacked on to the mortgage
over and beyond the interest rate being quoted. They
usually run between 6 and 8 percent of the mortgage amount
being borrowed. Closing costs include attorney fees,
title insurance and points. One point is equal to
1 percent of the mortgage amount borrowed and must be paid
upfront at the closing. Only with FHA loans (explained
in Chapter 8 of this book) can points be financed along with
the rest of the mortgage. A complete list of closing
costs is detailed in Chapter 15 of the referenced book.
Junk fees came about because of the cut-throat competition
created by the huge number of lenders competing for
mortgage business around the country, Paul Havemann explained.
Consumers care mostly about the rates and points and, when
shopping around, that’s what people compare, he said.
A low application fee might be quoted and what was once part
of the fee thrown into closing cost fees. (When business
is slow, however, lenders seem to eliminate a number of these
junk fees and closing costs to make their loans more
attractive and competitive. A number of states have also
been cracking down on what fees are called and what can be
charged upfront.)
A favorite fee of Havemann’s is the “document preparation
fee.” This fee can cost as much as several hundred
dollars, he said, and is for nothing more than a secretary
typing up the loan’s paperwork.
Donald Henig, past president of the National Association of
Mortgage Brokers, has seen lenders charge $25 for a flood
certification, where an independent agency checks to see if a
property is in a flood zone. The cost of the lender for
this is roughly half that amount.
This Homebuyers Tip was excerpted from:
J. K. Lasser’s Guide to Buying Your First Home, by Joe
Catalano, J. K. Lasser Institute, a division of Simon &
Schuster, Inc., 1993
ISBN# 0671880667
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