Mortgage settlement services encompass a wide range of topics. You have lenders, title companies, appraisers, and attorneys all asking for a piece of the pie. How much should you pay? How do you know if you pay too much? Because the rules vary from state to state and even county to county, it is up to you to do the research to find out what you should be paying.
Understanding Mortgage Settlement Services
Mortgage settlement services include any service necessary to process your loan and get it to the closing. From start to finish you could have numerous parties involved in the process. The lender is usually the largest, but you also have various other third parties offering their help. For example, the credit bureaus provide a report showing your financial background. This helps the lender determine if you have a history of paying your bills on time. An appraiser inspects the home and its condition to determine the home’s value. The lender uses this as well to determine if there is enough collateral to back up the loan. Each of these parties, as well as many others, have a stake in your loan and need payment in return.
Learning the Terms
Before you shop for a mortgage, you should brush up on the standard mortgage terms. Many lenders have different names for the same service. Knowing this can help you compare apples-to-apples, so to speak. Here is an example of how the lender’s processing fee can be shown as different things:
- Document prep fee
- Application fee
- Commitment fee
- Origination fee
If you were to compare two lenders, one of which who called the fee a processing fee and another who charged an origination fee, but no processing fee, you might opt for the lender with no processing fee. In essence, you still pay it, just in a different way. Brushing up on the most common mortgage language will help you decipher the Loan Estimate the lender provides you. The most common fees you may find include:
- Credit processing
- Title search
- Closing fee
- Title insurance
Compare the Offers
Once you have 3 or 4 offers from various lenders, you need to compare them. Do not just look at the rate or just the costs. Instead, look at the big picture. For example, if one lender charges an exceptionally low interest rate compared to the others, take a close look at their fees. Lenders are in business to make money. They are not just going to give a loan away in an effort to get your business. They will find somewhere else to make the money. You may find they charge discount points or an origination fee whereas the lenders with the higher interest rates do not.
Comparing the offers also requires you to figure out your plans. Are you purchasing the home as a temporary residence or is it your forever home? If you plan on staying for the long run, paying a lower interest rate may pay off because you will pay less interest over the term of the loan. However, if you know you will move in 5 to 7 years, paying the high fees for a lower interest rate may not save you any money since you will not pay the lower interest rate for long.
The Art of Negotiation
Just like you can negotiate when you buy a car, you can do the same with a mortgage. Some lenders are more flexible than others. In fact, you may find lenders willing to give you a zero closing cost loan in exchange for a slightly higher interest rate. Whether you need to get that drastic is up to you. However, it never hurts to ask about the lender’s ability to lower or waive certain fees. If you have other offers to use as fuel, the lender may be more willing to negotiate the fees in an effort to get your business. A loan with fewer fees is better than no loan in the lender’s eyes. Always ask what fees they can waive or lower before you choose a lender. Typically, the third party fees, such as the appraisal, title, and attorney fees are non-negotiable. But, fees like the processing, underwriting, discount, origination, or doc prep fees are often variable.
The cost of mortgage settlement services are never set in stone. You have the opportunity to shop around and find lower rates if one lender seems too expensive. You also have the ability to negotiate the fees. Some lenders may adjust your interest rate slightly in an effort to make the same profit off your loan, though. Make sure you look at every aspect of the loan and how it will affect your finances before deciding. Do not automatically assume one lender is too expensive because his fees are higher than others. Look at everything before you decide which settlement costs are the most affordable for you now and through the life of the loan.