Fees, Fees, Fees - Are They Really Necessary?

Unfortunately when you are dealing with real estate there are always going to be fees and closing costs involved in the process. Even if you are not obtaining a mortgage on the property, there will still be fees associated with the real estate transfer, such as a recording fee, transfer fee, title/attorney fees, notary fees, doc stamp, etc... Even if you are obtaining a mortgage on the property and you are using a lender that is advertising no closing costs or no fees, chances are you will still have to pay for items such as an appraisal fee, your 1st year of homeowners insurance, your tax and insurance impound account deposit, and quite possibly an application fee.But how can these lenders avoid all of the other fees that you have heard about or noticed in prior real estate transactions. The answer is very simple, they "jack up" your interest rate on your mortgage loan to account, for the amount of money you would have had in fees, and then some. Many of these lenders advertising no closing costs or fees will even add a pre-payment penalty to your loan to make sure that you stay in it for at least a few years so that they can recover the money that they paid for your closing costs.

So what are all of these fees for and what do they do for you? We will not discuss every individual fee in this article, but we will focus on the main fees and charges. First, we have the appraisal fee. This one is pretty self explanatory, as you want to make sure the home is worth what you are going to pay. Next, we have your lender fees such as underwriting and such. These fees compensate the lender for reviewing the file, making sure the file adheres to the lending institutions guidelines and policies and normally to FNMA and FHLMC's guidelines as well. Third, we have origination fees and/or broker fees. Usually, you will have these fees if you work with a mortgage broker or a mortgage banker.

A mortgage broker will shop your loan around and will almost always find you a considerably lower rate than what you would be able to qualify for on your own with the same lender. Therefore, they charge a fee for this service. Fourth, we have your title company fees. Many times the total fees here for the title company will be the largest chunk of fees charged. The title company fees guarantee that you receive a clear title, insure the title, insure the loan is properly recorded and notarized, and make sure all of the money is properly disbursed accordingly. Finally, you have your miscellaneous fees such as survey, endorsements, doc stamps, wire fees, etc... that are not always necessary but depend on the type of loan and the lender's policies.

Therefore, even though sometimes the fees can seem a bit much, mainly they are all there for your benefit and protection. Anytime you are considering a no cost or no fee mortgage, make sure that you have no intention to keep that loan more than a few years. If you decide to go with a no fee loan and keep it longer than that, you will end up paying much more over the life of the loan than had you just paid the closing costs. If you are planning to stay in the home for a number of years, then paying the closing costs and taking the lowest possible rate will probably be in your best interest and will save you the most money in the long run. Also, some of your closing costs may be tax deductible. You can also have the seller of the home you are buying pay your closing costs by negotiating that into the price. There are many options that surround you when dealing with fees and real estate, just make sure you understand your options and you make the best decision for your finances.

The author of this article, Dave Zwierecki, has over 10 years of experience in the credit and mortgage lending fields. http://www.gofirstsecurity.com/Florida/closing_costs.htm

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