Mortgage Confidential: How to compare mortgage closing costs
Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.
When comparing mortgage companies to try and find out who has the best deal, one is encouraged to ask for a "Good Faith Estimate of Settlement Charges," or simply, a "Good Faith," from each competing lender.
One lender may have a lower interest rate but tacks on a whole host of fees to make up for the lower rate. While yet another lender might offer fewer fees in lieu of a lower rate. There are several problems associated with reading a Good Faith, but the biggest problem is trying to understand all those fees, who charges them and what they're for.
Sneaky loan officers can write up a competitive Good Faith, with low rates and low fees, not by low-balling their own mortgage company fees, but by underestimating charges associated with third parties such as attorney or title charges. Unwittingly, consumers can compare three different Good Faith estimates and look at the bottom line...how much is this going to cost me? Loan officers have no control over third party fees; they are what they are. But loan officers do control what's entered onto the actual Good Faith.
If all the consumer does is look at the bottom line and see one lender quoting lower closing costs than all the others, it's important to compare the non-lender fees being quoted as well. If one loan officer is quoting you $50 for an attorney charge while the other loan officers are quoting $500 for an attorney charge, then it's possible you're being intentionally low-balled. When you go to your closing you'll find out the attorney does in fact charge $500 and not $50 and your loan officer will say something like, "Hey, I have no control over what they charge" and you're forced into a closing you didn't expect.
When comparing Good Faith estimates, only compare lender fees such as processing or appraisal charges. If all you do is look at the bottom line, you could be misled.
Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.