Shopping: Closing Costs: Lender Fees, Vendor Fees, and Prepaid Expenses

By Francine L. Huff
Mortgage Credit Problems Columnist

Anytime you get a mortgage you'll have to pay closing costs. Those are the fees that a borrower must pay to process a mortgage loan. Whether you're getting a debt consolidation mortgage or a loan through a refinance company, it's important to know which closing costs you'll be required to pay.

Lender Fees

Mortgage lender fees can vary widely, which can make it tough to compare various loan offers. Although you will receive a Good Faith Estimate (GFE) of closing costs, some of the items could change depending upon the circumstances. Here are some of the closing costs you can expect to pay:

• The processing fee is what you pay to have your loan processed.
• The underwriting fee is what you pay to have an underwriter review your loan.
• The application fee is usually charged upfront to begin the loan process. This fee may be negotiable.
• Discount points are paid to reduce the amount of interest on a mortgage loan.  For every point you pay you'll reduce the interest rate on a 30 year fixed-rate mortgage 1/8th to 1/4th percent.

Vendor Fees

Some fees you will incur are for third-party services related to closing your mortgage. Vendor fees include:

• Credit report fees pay for the cost of a debt consolidation mortgage or refinance company to pull your credit report. This fee is usually charged upfront.
• An appraisal fee to determine the value of the home you plan to buy or refinance.
• A tax service fee that pays for the lender to oversee property tax payments.
• A flood certification fee to determine if a property needs flood insurance.

Prepaid Expenses

An escrow account will be set up to handle other expenses associated with home ownership--these items have to be paid whether you have a home loan or not. Expenses include:

• Property taxes that are paid to your local government. Usually taxes are paid on a quarterly basis directly from your escrow account.
• Homeowners' insurance payments are collected in your escrow account until payment is due. Depending upon your policy, payments may be made monthly or annually.
• Mortgage insurance, or MI, is usually required for people who make a down payment of less than 20%. MI protects the lender in case a borrower defaults.

Some of these fees may be negotiable so don't hesitate to ask your lender to cut you a break. Also, in this tough housing market, some people who are desperate to sell may be willing to pay for some buyers' closing costs.

Sources:
The Sideroad
"Real Estate Closing Costs: Which Fees Are Negotiable?" by Anthony Kirlew, www.sideroad.com.

About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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