Mortgage Fees and Closing Costs Have Risen - Prepare Early

Most first-time home buyers realize there are certain costs associated with a mortgage loan. Collectively, they are known as closing costs, and they include a dizzying array of fees.

But what you may not realize is that these mortgage fees have reached their highest point in nearly a decade. According to data collected by the Federal Housing Finance Agency, mortgage origination fees (one of many) have reached their highest point in eight years.

Why is this happening? Because most banks need to recoup the losses they've incurred from bad loans, home foreclosures, etc. It's the same reason they are keeping their offered rates higher than the fed rate at which they borrow money.

What Home Buyers Need to Know

So how do you prepare for these mortgage closing costs and fees? How much will you be expected to pay, and when will you know the total amount? Here's what you need to know.

• Mortgage origination fees are just one aspect of your final closing costs. Overall, these costs can total up to between 3% and 5% of the loan amount.
• If you have a less-than-perfect credit score, you will probably pay more fees on your mortgage loan. This is the result of new lending guidelines recently put forth by Freddie Mac and Fannie Mae.
• To avoid these new credit-based fees, you would need to have a FICO credit score of 740 or higher. Here are some tips for raising your score. By the way, having good credit will also help you secure a better interest rate on the loan, so it's a double win.
  
• You will get a "good faith estimate" of these fees and costs when you first apply for the loan. This is required by law, specifically through the RESPA law.
• It's fairly common for the good faith estimate to be lower than the actual closing costs. This is one of the many games that lenders play. Historically, the RESPA legislation has done a poor job cracking down on these discrepancies.
  
• A day before your actual closing / settlement process, you will receive a HUD-1 Settlement Statement. This document will provide an accurate listing of your closing costs. Generally, you would write a check based on the amount listed in your HUD-1 statement and bring it to the settlement.
• The best thing you can do to prepare for this process is to start saving money, as early on as possible. Most lenders will require you to have a certain level of cash reserve in a ready-access account (checking or savings), for this very purpose.

Do you have questions about mortgage fees and closing costs, or other aspects of the home buying process? Feel free to email them to the editors!

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