In my last post I discussed the relationship between interest rates and lender fees. The biggest mistake a lot of home buyers make when comparing lenders, is to be confused by the difference between lender fees and "closing costs".
Many people will ask a lender to give them an estimate of "closing costs" as a way to compare lenders. This is not a good way to compare lenders because while "closing costs" do include lender fees, it also includes a lot of costs that have nothing to with the lender that you choose.
Many closing costs are charged by third parties that are unrelated to the lender, and these third party fees will be the same no matter which lender you choose. Examples of some of these costs are title insurance and closing/escrow fees, taxes and recording fees charged by the state or county, property survey fee, etc. Lenders will estimate these third party costs differently so comparing the total closing costs estimates received from lenders will give a home buyer a false comparison.
The best way to compare the difference in cost between lenders is to isolate the true "lender fees" from the third party closing costs. Lender fees can go by many names such as Origination Fee, Underwriting fee, Administration fee, Processing fee, Document Preparation fee, etc. Lenders may also charge Discount points, which will also have to be considered when determining the overall cost (Discount points will be discussed in more detail in a later post).
In summary, when comparing lenders you want to ask them for an itemization of their fees. This will give you the basic foundation for comparison. Once you know all of the costs associated with doing business with your prospective lenders, along with the interest rates that those lenders are offering, you will ALMOST be ready to pick the best offer. I say almost because it's usually not as cut and dry as you would think. In the next post, I will discuss putting all of the facts together so you can determine your best offer.
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