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You've signed a commitment to buy a home, locked in a mortgage at a competitive interest rate, and bargained with your real estate agent for a lower commission. As a consumer, you're feeling good about saving yourself a bundle.
So it can come as a punch in the gut to realize that a slew of mortgage fees—for loan processing, title insurance, overnight document delivery, and other services—are pulling more dollars from your pockets at the closing.
It may not be clear what those fees are for. And for many, you have little option but to pay them.
“People really don’t have an opportunity to shop around for many of these fees," says Lisa Sitkin, senior staff attorney at the not-for-profit National Housing Law Project, in San Francisco. "They’re locked in to what their banks choose."
But there are other major mortgage fees you can control, which could save you hundreds or thousands of dollars. You'll need to begin early in the mortgage-shopping process, however, before you even settle on a lender. Here's how to get started.
Get Several Loan Estimates
Your best tool to comparison-shop mortgage fees is a Loan Estimate—a free, standardized form that you can request from each lender. Obtaining a Loan Estimate doesn't commit you to a lender, so you should get estimates for the same loan amount and time frame (15 years, 30 years, for instance) from several lenders, says the Consumer Financial Protection Bureau.
To get a Loan Estimate, you may have to pay a small fee—say, $20—so the lender can make a credit inquiry. You'll also need to state your income, Social Security number, address of the home, estimate of its value, and the loan amount. Multiple credit inquiries only minimally affect your credit score, as long as they're all made within a 45-day period.
The CFPB's Loan Estimate Explainer provides lots of detail about what's in the form and how to use it.
Your goal, in short, is to minimize your mortgage's total cost. The Loan Estimate lays out that total cost, so you can compare loans, apples to apples.
Avoid or Minimize "Junk Fees"
Next to obtaining a good interest rate—which can amount to tens of thousands of dollars in savings over the life of your loan—minimizing origination charges is the best way to reduce your overall loan costs, says Bill Banfield, executive vice president of capital markets at Quicken Loans, the behemoth online retail mortgage lender.
"The meat is the interest rate," Banfield says. "Origination charges are probably the next go-to."
Origination charges typically have more impact on the overall total loan cost than other fees, which tend to be relatively static, he says.
Section A, on the Loan Estimate's Closing Cost Details page, lists those origination charges. They go by various names, including processing fee, origination fee, underwriting fee, or application fees. They're where many lenders make their money, sometimes in the hundreds or thousands of dollars.
"We call them junk fees in the industry," says Theresa Williams-Barrett, vice president of consumer loans and loan administration at Affinity Federal Credit Union in Basking Ridge, N.J. "They're really to cover the cost of handling your application."
As a credit union, Affinity Federal doesn't charge these fees, Williams-Barrett says.
"The fees are gibberish that mean somebody essentially pressed a button on a computer to send something," Sitkin says. "So much is automated these days that it doesn’t justify a $300 processing fee."
Compare total origination charges among the Loan Estimates you've received. When all other things on competing Loan Estimates are equal—interest rate, loan term, discount points—choose the lender with the lowest origination charges.
Or use the Loan Estimate to bargain with the lender you prefer to reduce or eliminate origination charges. "Consumers can negotiate anything they want, and probably should," Banfield says.
Keep in mind that those negotiations usually involve trade-offs. For a loan with low or no origination fees, "typically you'll pay a slightly higher interest rate," Banfield says.
Shop for or Negotiate Fees You Can Control
The Loan Estimate's section "Services You Can Shop For” identifies where you generally can flex your comparison-shopping muscles—though not always. In some cases, the prices may be set by statute.
“They call it 'shopping' on the Loan Estimate because the lender isn’t requiring you to use their company," Williams-Barrett says.
Here are some areas where you can comparison-shop by price:
• Buyer's attorney. This fee can be a few hundred to several thousand dollars, depending on location. If your state requires a buyer's attorney at mortgage closings—or if you want one to ensure a smoother process—find a real estate attorney through your real estate agent, friends, or a local website that rates professionals. Talk to a several candidates; most charge a flat fee, and the difference in price can be several hundred dollars. Keep in mind you may be charged that fee, or a portion of it, even if the deal falls through.
• Pest inspector. This averages $100 but could run from $50 to $280, according to HomeAdvisor. Get references from your real estate agent. Or look at HomeAdvisor, Angie's List (owned by HomeAdvisor) or other websites that rate local service providers.
• Homeowners insurance agent. The average premium is $1,288 for a $200,000 home with $100,000 in liability coverage and a $1,000 deductible, according to Insurance.com, an insurance-shopping website. Check our Ratings of homeowners insurance companies for the best providers, and go to the company's website to locate an agent.
Consumer Reports has found policy-shoppers can save hundreds on homeowners insurance by shopping around, though few people do. By combining your auto and homeowners policies with one company, you also can save up to 30 percent on both coverages.
• Title insurance and related services. A mortgage typically requires a title insurance policy for the lender, plus related services like a title search. You also have the option to buy title coverage for yourself, and it's often recommended.
Find out from the lender or your attorney if title service prices are set by statute in your state. If not, consult the Loan Estimate, which will list local title companies you can call to compare pricing. The average title policy is about $1,000, according to Realtor.com. But it could be much more, depending on where you live.
If it's customary in your area for the real estate attorney to choose the title company, ask him or her to choose a low-cost service. "The purchaser’s attorney might be able to get a better price on a title service because he or she is doing bulk business," Williams-Barrett says.
• Survey. This averages $500, HomeAdvisor says. You might find the survey for the home on your own at the municipal clerk's office, saving the cost. Or, you could ask the seller's real estate agent if the seller already has an updated survey. Otherwise, check the Loan Estimate for local survey companies to compare prices.
Question Fees That Appear To Be Out of Your Control
The Loan Estimate's Closing Cost Details page also includes a section called "Services You Cannot Shop For." They include the home appraisal, a credit-report search, and flood determination—which establishes whether your property needs flood insurance—and flood monitoring, which checks flood maps regularly for changes in your home's flood rating.
The lender chooses those services, and you usually have no control over the fees. But it doesn't hurt to question them and suggest lower-cost options.
• Appraisal. Ask a Realtor for the average appraisal fee in your county; it will vary according to the price of the property. If the fee on your Loan Estimate is way out of line with the norm for your area, ask the mortgage officer if the lender can use another, less-costly appraisal service. Or, show your preferred lender a competing lender's lower appraisal fee on its Loan Estimate.
"You may be able to use this information as a reference point to have your lender negotiate a lower fee with their preferred provider," notes Bill Packer, chief operating officer at American Financial Resources, a lender based in Parsippany, N.J.
• Notary. The price to have a notary attend the closing, which is common in many states, can be a few hundred dollars to more than $1,000, depending on location. You may be able to save by opting for an electronic notary service, in which you and the notary communicate via videoconferencing. Notarize, an electronic notary system, estimates typical savings from $50 to several hundred dollars—though you'll have to ask your title agent, real estate attorney, real estate agent, or loan officer to arrange for this.
Prepare for Closing Fees You Can't Avoid
Your lender is required to provide you with a Closing Disclosure three days before the settlement, or closing.
Make sure you read it so you can correct potential errors and question the lender and other professionals before going to the closing, the CFPB advises.
The Closing Disclosure should have updated costs for the Loan Estimate entries, plus updated figures on items you'll need to prepay: Local taxes, homeowners insurance, interest on your mortgage, and mortgage insurance if you're putting down less than 20 percent of the home price. Those items aren't really fees, and there typically isn't much you can do about them.
Likewise, you'll encounter some unusual, small fees, such as mortgage-recording fees, that are determined by your county, state, or municipality. You have no control over those.
"There are certain fixed costs that that you just have to be prepared for," says Esther Mildner, a real estate attorney based in Ardsley, N.Y.
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