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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
Watch those home-buying administrative fees
Real Estate Adviser

Many closing costs negotiable

Dear Steve,
I just purchased a condo and was informed I would be hit with an "administrative fee" of $195 to be paid at closing. I have never heard of this before. Am I being ripped off?
-- Bob Smythe

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Dear Bob,
Sorry to tell you this, Bob, but I'm going to have to charge you both a research fee and an answer-origination fee to respond to your question, followed by a messenger fee for delivering the answer. While we're at it, could I also interest you in some undercoating for your car?

Forgive the sardonic response. Of course, I am just kidding. In fact, I hereby vow to never assess any such junk "Web advice" fees on readers. But that doesn't mean you won't be hit with a few more questionable fees before the homebuying process is all over.

Administrative fees, at least hypothetically, cover anything from underwriting costs to document preparation to courier fees, or all of the above, and can run anywhere from $50 to $500 or more. I say "hypothetically" because you may be assessed a separate document-preparation fee in the closing-cost mix by the time all the "T's" are crossed. While lenders are obligated to provide a good-faith estimate of loan costs within three days following receipt of your application, they really aren't obligated to stick to it to the end because the law regulating this really has no teeth. Not to say most closing fees are totally without merit. However, some are over-inflated and challengeable or, at the very least, negotiable.

There may be one real estate-related fee worth paying. For $45, the National Mortgage Complaint Center (866-714-6466) will look over your closing fees and alert you to dubious or excessive fees. They'll probably also remind you that many closing fees are negotiable if not revocable. They will also do a document inspection for an existing loan for $150.

Incidentally, some buyers faced with high closing costs plus a mortgage broker's fee are opting for an alternative known as a "yield spread premium," or YSP. That's where the buyer pays a slightly higher interest rate on a home loan while the broker pays some or all of the closing fees. How does this iron out for the broker? Well, lenders are often willing to compensate brokers, at least in part, for such fees because loans with higher interest rates pull in more money in the long haul. But be careful. This approach is only legit if the buyer is paying either very low closing costs or no closing costs. Otherwise, a buyer may have a case for predatory lending.

Keep a close eye on other fees at closing time. Good luck to you.

To see your state's average closing costs, see Bankrate's 2007 closing costs study.

Bankrate.com's corrections policy -- Posted: Sept. 16, 2007
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