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Compare the right numbers when comparing closing costs

By Holden Lewis
When you compare mortgage offers, you have to know which fees to pay attention to and which costs to ignore until later.

It's worth taking the time to contrast loan offers. A survey of online mortgage lenders finds that their estimated fees vary widely. Some lenders are more thorough than others when they estimate the fees and taxes involved in a transaction, making it confusing to comparison-shop.

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There are five kinds of closing costs:
  • Fees that the broker or lender charges
  • Fees that third parties control
  • Taxes
  • Title insurance
  • Prepaid items

Borrowers first should scrutinize each lender's cost estimate and add up all the fees that the lender directly controls, plus third-party fees associated with getting the loan.

Lenders are aware that this isn't easy. Even if you get multiple quotes and compare them, "it's still very difficult to go through and say, 'What am I really paying? What do I have to pay and what do I not have to pay?'" says Rob Snow, vice president of retail lending for E-Trade.

Understanding good faith estimates

When you apply for a mortgage, the lender is required to give you a standard form called the good faith estimate of closing costs, the operative word being "estimate." What an online lender presents to you onscreen isn't officially a good faith estimate, but it should be close, and the information presented there is what Bankrate compiled in the fee survey.

"What you see on the screen is in a sense a summary of the costs, but not in the detailed format of a good faith estimate," Snow says. "I hope it wouldn't change at all in terms of the bottom-line number."

It's a similar story at rival Amerisave, where Dave Herpers, director of consumer affairs, says the technology that the lender deploys to display detailed closing costs online is identical to that used to prepare good faith estimates. "Assuming that nothing changes from what you searched on the Web site to your application, the fees would be identical," Herpers says.

The good faith estimate is divided into sections of similar fees, each denoted by a range of numbers: the 800s, 900s, 1000s, 1100s, 1200s and 1300s. For comparison-shopping, the most important fees are the ones listed in the 800s. Most of these items are controlled by the lender or broker, so the estimates should be accurate. A few of the items in the 800 series are charged by third parties, and the lender shouldn't be far off in those estimates.

The lender or broker has direct control over origination and discount points and fees (801 and 802) and administrative, underwriting, processing, funding, document prep, wire transfer and other fees (810 and higher).


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-- Posted: July 8, 2004

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