Settlement costs are a confusing, and often highly annoying,
aspect of obtaining a mortgage. They are present with all
mortgages, though they vary greatly among lenders and even
among different regions of the country.
People are often also confused about whether the costs are
negotiable or completely fixed. Costs consist of four basic
areas – fees paid to your lender, fees paid to third
parties but controlled by the lender, other third party fees,
and finally other settlement costs.
Fees paid to the lender should be your main focus. These
fees can take the form of points and dollar fees. Points are
expressed as a percentage of the total loan amount, and are
paid upfront. Consumers take points into account when choosing
lenders because they are advertised with rates. Origination
fees are also expressed as a percentage of the total loan
amount but, unlike points, aren’t related to the interest
Other dollar fees, as well as origination fees, are not reported
in advertisements and are usually not considered by borrowers.
Because these fees do not change with the market, there is
little risk for the lender in guaranteeing them through closing.
You should always ask for such a guarantee on these fees.
Fees controlled by the lender are usually necessary services
that are ordered by the lender. These may include pest inspections,
appraisals, and credit report. Experienced lenders also know
the cost of these fees and should be able to guarantee them,
Other third party fees aren’t known to the lender and,
as such, won’t be subject to any guarantee. These fees
include title-related services and settlement services. Since
the costs are unrelated to the lender, you may opt to comparison
shop on these services. You can even continue to so after
selecting a lender.
Other settlement costs are a mixed bag of charges. They include
things like government charges like transaction taxes; per
diem interest for the time period between closing and the
first of the month; escrow reserve for payment of your taxes
and insurance; and hazard insurance (also known as a homeowner’s