Mortgages are a science.  And for the average consumer, mortgages ARE rocket science. 

Without "being in the industry", how does one compare a Mortgage Lender to the next?  For that matter, where do you even begin?

With the Good Faith Estimate

Ask for it, request it and heck, demand it if you have to!  If your lender doesn't readily furnish you with a completed Good Faith Estimate, run and run fast.  Am I clear on this point?  If you don't get the GFE (Good Faith Estimate), DON'T use that lender.

Interjection:  Now I wouldn't recommend picking up the yellow pages and calling the first AAA or Acme Mortgage company on the list.  Rather, begin your search by asking friends and family who they would recommend for a loan officer.  Get a referral!  What are their credentials?  How long in the business?  What do past clients say about him/her?  If you are lucky enough to get a great referral and you begin building a relationship of trust and confidence right from the "get-go", you may not even have to look any further.  You've just been blessed to work with a true professional with your best interests at heart.

However, if blessings aren't knocking at your door, it's time to get to work and start shopping.  Which brings me back to the GFE.

Once you get a couple in hand, actually comparing them can be a sea of confusion in and of itself.  I firmly believe that knowledge is power and that power brings about a more educated consumer with the ability to make educated decisions.  Deciphering the GFE can be a bit overwhelming, but with these tips, I believe I can uncover some of that mystery.

(Disclaimer:  I only originate loans in MN and WI.  Closing costs can vary by state.  Some of the items below may or may not apply to you.  Refer to your local Realtor, Title/Escrow Company or Mortgage Bankers Association to find out fees customary to your state.)

Lender Fees

Origination Fee:  1% of the loan amount...typical fee charged in MN and WI. 

Discount Points:  Are you buying the rate down?  If not, you may want to find out WHY you are being charged any discount points. 

Appraisal Fee:  Yes, if you are buying or refinancing a home, you will most likely be required to get an appraisal.

Credit Report:  This fee varies widely from lender to lender...usually $8-$25.  Some lenders don't even charge for the credit report.

Processing and Underwriting Fees:  With so many lenders downsizing, sub-contracting these functions of the mortgage process has become more prevalant.  And yes, just like everything else, you-the consumer- pays for this.

Commitment/Lender Fee:  Covers administrative costs of the lender and varies widely.  Secret:  This is one fee that can usually be negotiated! 

Miscellaneous Broker Fee:  If you're willing to pay a "miscellaneous" fee, will you please call me?  Cause I've got some land in Timbucktoo to sell you!  Don't EVER pay "miscellaneous" fees.  Enough said.

Title Company and State Fees

Settlement Fee:  This is the fee that the title company charges to close your loan.  This is a fixed fee and does not vary by loan amount.

Title Insurance Lender Policy: A fee charged by the lender, but this figure is determined through the title company.  A loan officer has no power to raise or lower this fee.  Only varies slightly.

Owners Policy:  Optional title insurance that you can purchase at closing to protect your own interest in the property against title issues.

Recording Fee:  $46 per document recorded.  If you get a standard 30 year fixed mortgage, this fee is typically $92.

State Tax Stamp/Mortgage Registration Tax: A MN fee that is fixed.  The calculation is .0024 per $1,000 borrowed.

Assessment, Name Search, Plat, Title Exam: These fees are all charged through the title company in obtaining a clear title for your property.  These fees can vary.

Conservation Fee: This fee is fixed.  Every mortgage transacted in the state of MN is charged a $5.00 fee.

Now, are you ready for an education in real estate taxes and escrow account set-up?  (if the above wasn't enough, huh?)

Here's the scoop (keep in mind that this is for MN):  The amount of taxes that are collected at closing (and reflected on the Good Faith Estimate) is strictly dependent on the month that you close.  So keep in mind, that whenever you get a Good Faith Estimate it is just an estimate.  Once you have a definitive month of closing, your loan officer can tell you how many months of property taxes will be collected for your escrow account.  In other words, a loan officer does NOT have control as to how much they are going to take out to set up your new escrow account.  It is what it is.  Although there are laws against collecting too much, enough taxes have to be collected, so that when they become due, there is enough in your escrow account for the lender to pay them. 

(Taxes in MN are due on October 15^th and May 15^th.  At closing, the appropriate number of months will be collected PLUS a two month cushion.)

So for example, if you close in July, they will collect 7 months of taxes at the closing.  On the other hand, if you close in October, they would only collect 3 months of taxes.  Why?  Because as you are making your monthly mortgage payment, a portion of that payment goes into your escrow account for property taxes.  If you close in July, you would have only made 1 payment prior to taxes being due.  The lender needs to have 8 months of taxes in your account (6 months that are due and paid on Oct 15^th and that 2 month cushion that I mentioned earlier). So the fast math is: 8 months - 1 from your Sept. mortgage payment = 7 months which needs to be collected at the closing.

"Moral of the story"...when comparing Good Faith Estimates, you cannot compare sections 900 (Items Required By Lender to be Paid in Advance) or 1000 (Reserves Deposited with Lender).  As with ALL loan officers, we do not have any control over these numbers.  By the way, "Prepaid Interest", line 901 is strictly dependent on the day of the month that you close.  If you close on the 31^st of the month, you would then only pay 1 day of interest.  If you close on the 15^th of the month, you would pay 16 days of interest (assuming 31 days in the month).

Whew!  I am probably as tired as you are overwhelmed.  Okay, read it one more time.  I promise it will make more sense the second time through.

Sherri Sherpy

MN Mortgage Mom