Closing Costs Explained: Part Two – Lender/Broker Fees

I've often wondered how a good faith estimate, an initial closing cost fee sheet and/or an estimated settlement statement must look to a first time home buyer. All of these documents itemize the various closing costs involved in purchasing their home yet they do not explain exactly what each fee entails.

Of course, a good loan officer will sit down with his or her clients and carefully explain the loan's closing costs. However, in this day and age, it is very common for a loan officer to never meet his or her client face to face. I have conducted several transactions by phone and (mostly) email. This is not the best format in which to explain closing costs.

So over the next few weeks I will lay out here some common closing costs: what they are and why they may be necessary in order to close a transaction.

In my last post on closing costs, I explained what origination fees are and how they are usually charged. In this post I will address the other lender-related costs a borrower may encounter.

Whether you are obtaining your loan through a direct lender of utilizing the services of a mortgage broker, a very common closing cost you are likely to be charged is a Processing Fee. This fee is charged to cover the costs associated with gathering and (big surprise) processing the documentation needed to complete your loan file. The loan processor is a very integral part of any loan transaction. He or she will make sure all the needed documents are in the loan file and that they are up-to-date. A processor will many times be the liaison between you and the mortgage underwriter (the decision maker) and work to ensure your loan is approved and closed on time.

Along with the processing fee, you may also be charged for a credit report and/or the appraisal on the property you are buying or refinancing. These fees may be paid either to the actual company providing these services or they may be paid directly to the broker/lender on behalf of the service provider.

Lender and bank fees can vary greatly but there are a few categories that are commonly seen on closing costs statements:

• Underwriting Fee: this is the fee paid for the thorough review of your fully processed file by the lender's/bank's underwriter. The underwriter decides whether your loan is approved or denied. But it is usually only charged at closing if your loan is approved.

• Document Fee: this fee refers to the lender/bank's issuing your final loan documents and making sure they are delivered to the signing agent along with any other items that require your signature for closing.

• Flood Certification: all lenders will "pull a flood cert" to determine whether or not your home is in a flood zone and will need flood insurance. Whether you will need flood insurance or not, you may be charged a (usually small) fee for obtaining the certification.

• Wire Fee: this fee (again usually small) is charged by some lenders to cover the cost of wiring the loan funds to the closing agent (either escrow or the real estate attorney depending on where you live).

• Tax Service Fee: this is a fee charged by the lender to ensure that they are alerted if you ever default on your real estate taxes and to prevent tax liens from occurring.

These are the most common lender fees you may encounter. Of course, as mentioned above, they can vary greatly in name and in dollar amount. That's why it's important to shop for the best deal on rate and fees. A mortgage broker has access to many different banks and lenders and can do the comparison shopping for you.

In my next post, I will move on to fees associated with closing and title insurance. If you have any questions about closing costs, give me a call or drop me an email!

                        

          

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