Mortgage Shopping; Don’t Settle for Junk!

Shopping for a mortgage can be extremely overwhelming for a home-buyer and the newbie investor. Unfortunately many inexperienced property buyers just accept this exorbitant list of closing fees as standard. They don't realize that many of these fees are junk and can be negotiated out of the closing costs or significantly reduced.

Why do the lenders tack on these junk fees? Bottom line is they want to make money. They know that you are most likely going to be a one-time customer. How often do you purchase a home in your lifetime? The typical home-buyer is not a repeat customer. In the lender's eyes they want to make as much as they can with this one deal.

As a real estate investor I have more leverage in negotiations with a lender, because I am a repeat customer. The lender will bend over backward to get my business and they typically do not tack on these junk fees. If they do, I can easily get them removed because I have leverage. The loans that I secure are very straight forward, based on a point system. The definition of a point according to Wikipedia "Points, sometimes also called a "discount point", are a form of prepaid interest. One point equals one percent of the loan amount."

Closing costs are separated into two categories: non-recurring closing costs (junk fees) and recurring costs. Below is a list of these closing cost fees and a range of what you can expect to pay. These fees vary from municipality, therefore, it pays to be informed and be educated on closing costs. Please note that some of the recurring closing costs listed below depends on your individual situation. You may live in an area where flood insurance is not required or your circumstances may not warrant private mortgage insurance. I can't stress enough how important it is to do your due diligence and scrutinize your "Good Faith Estimate" statement. You can save thousands of dollars by negotiating these junk fees out of the loan or reducing them prior to closing!

Non-Recurring Closing Costs "Junk Fees" Amount Range Comments
Title Insurance $300-$900 Lenders will often require you to use a specific company. The fees can be inflated.
Title Search $100-$900 Lenders will often require you to use a specific company. The fees can be inflated.
Termite Inspection Fees $75-$500 Lenders will often require you to use a specific company. The fees can be inflated.
Attorney Fees $100-$1000 Lenders will often require their own attorneys. The fees can be inflated.
Survey Fees $150-$400 Lenders will often require a survey. The fees can be inflated.
Notary Fees $300-$400 Notarization requirements vary from state to state.
Wire Fees $30-$45 Wire transfer of funds.
Courier Fees $35-$50 Sending documents between lender and settlement agent. Total junk fee!
Home Inspection $175-$300 Lenders will often require you to use a specific company. The fees can be inflated.
Recording Fees $100-$600 Local fees, vary with municipality
Credit Check $30-50 Credit report from 3 credit reporting agencies
Document Preparation $50-$300 They use a template and fill in the blanks, Total junk fee!
Appraisal Fees $300-$750 Lenders will often require you to use their appraiser. The fees can be inflated.
Application Fee $75-$300 Meant to weed out "tire kickers", was included in origination fee. Total junk fee!
Underwriting Fee $200-$1000 A fee to review and audit the documents. Should be covered in origination fee.
Commitment Fee $200-$500 They are committing to the loan?  Total junk fee!
Funding Fee $100-$1000 Another name for "Processing Fee"
Mortgage Broker Fee $400-$1000 The mortgage broker makes their money on points. This is a redundant expense.
Processing Fee $100-$1000 A fee to process the loan and should be covered by origination fee. Total junk fee!

Recurring Closing Costs Amount Range Comments
Property Tax Variable Varies from city to city
Private Mortgage Insurance (PMI) Up to 1.5% of loan Up to 1.5% of the loan amount to be pre-paid first year.
Flood Insurance Variable Varies and depends upon the location of the property if it falls within a flood zone.
Homeowners Insurance Variable Depends upon the homes, location and type of insurance
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