The mortgage lending procedure is, shall we say, not always a walk in the park. If you're a borrower, you likely face such commands as "document this," "apply here," "provide that," and "sign here -- and here and there." Meanwhile, lenders also keep talking about fees -- a fee for this and a fee for that. Lots of fees.

• Administration fees.
• Document fees.
• Application fees.
• Processing fees.
• Underwriting fees.
• Wire fees.
• And -- who knows -- maybe "fee fi fo fum" fees.

Fees are a by-product of marketplace realities. A 30-year fixed rate mortgage is, well, just a 30-year fixed rate mortgage and similar loans tend to have similar prices -- especially in an era when borrowers can increasingly compare mortgage rates and terms.

Since loan rates are largely similar for like mortgages, lenders need to somehow raise revenues without appearing to have higher loan rates. One approach is to have competitive rates -- and also fees.

Lenders may not start turning a profit on a mortgage until well into the loan's second year. Huge up-front costs associated with loan departments, payrolls, rents and other expenses need to be offset, so lenders charge fees during the application process.

Some lenders charge more fees and some charge less. You need to shop around. Just because a lender doesn't charge one particular fee doesn't mean they don't charge another. If a lender tells you they "don't charge" for loan underwriting that may be true -- but they may well charge for something else. One lender may charge $500 for underwriting and processing while another charges nothing -- but somehow charges $500 for administration and documentation fees.

Names don't matter. The trick is to ignore fee names and instead concentrate on total costs and when they are paid.

Lenders with "low" rates and points may offset those rates with higher fees. Conversely, loans with few if any fees may have slightly-higher rates and points.

It doesn't hurt to ask lenders about fees. Simply getting a rate and points quote from a lender may not be enough. Ask them directly about any fees and the purpose and cost of each one.

This is especially important regarding fees that will be waived upon closing. For instance, a lender or broker might charge a $300 "application" fee that will be credited towards your appraisal at closing. If the loan doesn't close because you went elsewhere for a mortgage or for any other reason, you may not get your $300 back. After all, you didn't pay for an "appraisal," you paid for an "application."

Fees can be confusing, so pay less attention to what they're called and more attention to what they cost. And if you don't understand a particular charge, ask. Make sure you know where your money's going.

For more articles by David Reed, please press here.

Published: August 17, 2001

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