| Third-party fees in the 800s include the
appraisal, credit report, inspection, mortgage insurance application,
assumption, tax service and flood certification. These fees
are supposed to be passed along to you without markup. Some
national mortgage lenders own subsidiaries that perform these
functions, so they have a good handle on what the costs will
be. You should expect smaller lenders and brokers to estimate
these fees fairly accurately, even though they don't own subsidiaries
that offer the services.
Fees in the 1300 series -- for surveys and pest inspections
-- should be easy for lenders to estimate accurately, too.
The 900s and 1000s cover prepaid items -- mortgage, hazard and
flood insurance premiums, mortgage interest and taxes that must
be paid up front or deposited in an escrow account. The 1100s
comprise title charges: title insurance premiums, settlement
or escrow fees, attorney and notary fees.
Items in the 1200 series consist of government charges such
as city and county tax stamps and recording fees.
All the charges from the 900 series to the 1200 series are
difficult to estimate. Some of the prepaid amounts vary depending
on the date of closing: You would have to prepay a full month's
interest if you closed on the first of the month, but not
if you closed on the last day of the month. And how is the
lender supposed to guess the cost of homeowners insurance?
"It's certainly a challenge, as a lender, to stay on
top of all that and a challenge to explain it to borrowers
as well," Snow says.
Tough costs to call
Then there are taxes and title insurance. Online lenders hardly
ever get them right. Take, for example, Connecticut, where Bankrate
queried online lenders about borrowing $180,000 to buy a theoretical
$225,000 house in the 06103 ZIP code in Hartford. According
to a title agency consulted by Bankrate, the city and state
taxes on such a house would total $2,250. Title insurance for
owners and lenders would total $825.
None of the 15 lenders got either right.
First, the $2,250 in taxes: ABN AMRO includes taxes in its
OneFee offer, which doesn't break out taxes separately. E-Trade
didn't estimate taxes for Connecticut. Bank of America and
Countrywide Home Loans estimated government fees of $70. Wachovia
estimated $1,433. The other lenders made estimates in between.
Next, the $825 in title insurance. Estimates varied from
$383.50 (IndyMac Bank) to $1,456 (Wachovia). E-Loan estimated
the title insurance at $826, almost hitting the bull's-eye.
Bank of America sailed wide right, too, estimating $842.85.
Countrywide didn't estimate the cost of title insurance for
Connecticut or any other state.
"Basically, the title insurance is a third-party
fee that we can't guarantee, and typically is paid by the
seller," Countrywide spokesman Rick Simon says.
It works that way in some parts of the country, but not
in others. There are two kinds of title insurance policies:
those that protect the lender and those that protect the buyer.
Usually, but not always, the buyer ends up paying for the
lender's title insurance. Customs usually vary state by state
on who pays for a buyer's title policy -- and in California,
it varies within the state. In Southern California (where
Countrywide is based), the seller customarily pays for the
buyer's title policy, and in Northern California, the buyer
usually pays for his or her own policy.
These are merely customs. The buyer and seller are free
to negotiate their own deal, regardless of how everyone else
in town does it.
Although lenders' estimates of prepaid items, taxes and
title insurance vary wildly, the actual costs come closing
day won't differ much, no matter which lender you pick.
So you should ignore title insurance and taxes when you
compare offers, right? "It's a reasonably fair assessment,"
Snow says. In most states "there's a little more variability
in the title insurance than in the taxes," he says. Since
the real estate agents (not the bankers) usually select the
settlement agent and title insurer, you have to lean on the
agents to make sure you don't overpay for title insurance.
"If you're comparing lenders, I wouldn't take
title and attorney fees into account at all," says Jeff
Becker, director of operations for E-Loan. He recommends that
you ask the attorney or settlement agent for advice on timing
the closing to hold down the cost of prepaid items.