Ways to Avoid Overpaying Home Loan Fees
In worst case scenarios, home buyers can pay hundreds and even thousands of dollars more in home loan closing costs than is necessary. Fees, however, can be avoided or reduced.
When reviewing the “good faith estimate” of costs supplied by lenders, read it thoroughly and ask which fees are refundable. Some charges may be credited to other costs at closing.
Be certain your loan application fee is refundable, as well as any other upfront fee. Such fees are often not refundable if the transaction is terminated before completion, but it’s best to ask.
You may be able to avoid an application fee by seeking out a lender with low overhead costs. Such lenders originate a high volume of home loans. Be aware, however, that lenders may recoup waived application fees through higher points.
Appraisal costs may be avoided by using lenders that retain an in-house appraisal staff, a service that is considered a part of regular customer service.
If your comparison shopping turns up fees that vary widely between lenders, phone a nationwide mortgage lending institution that may be able to explain why fees are higher or defined differently in your area.
For instance, an institution that becomes inundated with refinances may tack on an extra $100 to maximize cash flow. A branch that’s experiencing a lag in such transactions may lower fees.
When buying a condominium, lenders require documentation proving that the building is covered under a homeowners association. Buyers can do their own footwork (involving picking up the form and duplicating it) and avoid the $50 to $250 charged by lenders.
“We always give buyers the option of doing their own footwork and avoiding the fee,” said Tom Dunlap, president of Jon Douglas Financial. “I’m always surprised at how many just don’t want to be bothered.”
Be wary when lenders offer zero point financing. “There are no free lunches,” added Dunlap. “About five years ago banks started eliminating points, but they just adjusted their yields to offset offering lower rates. For instance, you could get a 30-year, fixed-rate mortgage at 8 1/4% at 1.5 points or one at 8 3/4% at zero points. The difference really washes out.”
Also, shop around for title insurance and look for policies with few exclusions. If the house you are buying was owned by the seller for under three years, consult the seller’s title company. You may be able to obtain a lower reissue rate, especially if no claims have been made on the property since the last title search was conducted. You could save up to 70% of what it would cost for a new policy, according to the Mortgage Bankers Assn. of America.
Deal with financially solvent lenders. Banks that acquire failed institutions have no obligation to refund any up-front fees if they decide not to process your loan application.
Case in point: The Federal Deposit Insurance Corp. reimbursed mortgage applicants’ up-front fees of less than $500 when Dollar Dry Dock Bank in White Plains, N.Y. failed last year. But a portion of Dollar Dry Dock’s 260 pending mortgage applicants lost out. Their higher fees were not reimbursed by Emigrant Savings Bank of New York City, which took over the failed lender in February, 1992.
Perhaps consumers’ best recourse are laws, such as those enacted by the Truth in Lending Act, that require lenders to disclose in advance all fees that will be charged in connection with any mortgage loans.
Also, the Real Estate Settlement Procedures Act of 1974 (RESPA) was established to protect consumers from unnecessary settlement costs. The act mandates that lenders supply “good faith estimates” of closing costs within three business days of receiving a loan application.
Besides RESPA, Regulation X, which went into effect in December, 1992, now mandates that financial institutions disclose costs in advance for refinances, equity lines of credit and secondary trust deeds.
“It’s designed to prevent kickbacks and all unearned fees in the loan settlement process,” said David Williamson, director of the Office of RESPA Enforcement. “And it should address the problem of institutions that charge for three different services that are similar, while really providing only one.”
The booklets, “A Consumer’s Guide to Mortgage Settlement Costs” and a guide to “Mortgage Refinancings,” are available by sending a self-addressed stamped envelope to the Federal Reserve System’s Board of Governors, P.O. Box 65299, Washington, D.C. 20035.
