Whether you’re buying a duplex, condo, house, etc. the lender is always going to charge fees for giving you a loan. Not all fees are given to the real estate agent. The lender is going to make some money on the deal. They charge fees as well.
What’s involved with real estate closing costs?
- Processing Fees
- Attorney’s Fees
- Appraiser Fees
- Underwriting Fees
- Application Fees
- etc etc etc
Generally, anyone not directly working for the lender is going to be firm on their price. The Appraiser, for instance, charges a flat fee for their work. OK, fine.
But what exactly is an “Application Fee” and why do they want to charge $100 for it? If the lender says that its to process the application, why are they charging a Processing Fee of $400?
Why do they do this?
The Loan Officer-to-Lender relationship is similar to a Car Salesmen-to-Dealership relationship. Car salesmen make their money when the car is sold. Dealerships make their money by financing the car. The same applies with Loan Officers: their money is made when the deal closes. Lenders make their money by financing your investment.
To maximize their payout, Loan Officers charge for everything. Emailing documents, reading your application, grooming their dog, their daughter’s wedding catering service in Houston, etc. Then they charge a fee for that.
What can I do to protect myself?
- Question everything.
- Negotiate everything.
- The lender may be singing you praises about the great loan he got you and super low monthly payment. But nothing is for free. What is involved in getting this great deal?
If your lender begins to babble, talking about his tutu wearing pet monkey and yet cannot provide a clear cut definition of what each expense is and why each costs as much as it does, then you should probably avoid that lender. If you’re dealing in good faith, is it too much to ask that the lender deal in good faith as well?
Once you understand what everything is, start the negotiation process. Ask your loan officer if it really costs $150 to send an email. They may concede and knock $25 off the price. Twenty five dollars may not seem worth the effort. But once they start knocking $25 off from every fee, this can quickly add up to a few hundred dollars.
Is that worth your time?
If you want to be sneaky, tell your lender that you’ve been talking to a different lender and their closing costs are significantly less. You might get lucky and see some hoop jumping.
Once you have negotiated, get everything in writing. Then when you have your closing statement in front of you, compare the numbers. Did they live up to their agreement?
In the end, it has the potential to save you a few hundred dollars. This may not seem like much, considering you’re going after at $150,000 loan. But in the scramble to come up with funds, wouldn’t it be nice if the money you needed was suddenly just a little bit less?