Closing Costs and Tutus
Would you pay someone $150 to send an email?
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, 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?
Ask them.
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?
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First the loan offer doesn’t charge anything. Most fee’s are pre-constructed by the bank and the loan officer has to follow those guidelines. The only thing most loan officers can change is if their lender allows them to mark up or down the interest rate and many have gotten rid of that. Brokers can charge a higher fee for themselves because usually they are dealing with bad credit and 1/2 of their deals die before closing and they could be out a lot of time and money if it does. A loan officer averages about $500 per loan and the thats for 60 days of work, follow up, attorney BS, buyer and seller BS and more.
Negotiate everything? There is nothing to negotiate. Before you write an article on negotiating with a bank/LO, you should be one first. You would change this article in 2 seconds if you did.
While it may be true that banks/lenders direct loan officers on how to charge, there is no universal charging scheme that all banks follow. Two lenders may charge for the exact same service but be hundreds of dollars different in that service. So when I make the statement “Everything is negotiable”, there is nothing stopping a potential borrower from playing one lender against another to try and get a better deal.
More importantly, I reject the notion that you shouldn’t even try to negotiate. I have asked questions about my loans and have gotten fees reduced. Maybe not thousands of dollars but every bit helps.