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Whether you are buying or refinancing a home, the mortgage loan process is probably the least amount of excitement you can have and still feel good about the end result - owning a home, building equity, and having a possible tax deduction for the interest that you pay.

But there are fees that can chip away at that happy, responsible home owner feeling. If you see these fees listed on the Good Faith Estimate (that every lender is required to provide to you), you should ask to have them removed or shop around for better deals;

Underwriting Fee
Processing Fee
Non-refundable Loan Application Fee
Document Preparation Fee
Appraisal Review Fee
Loan Origination Fee or Mortgage Origination Fee

There are probably several others that I just haven’t come across. In fact, some of the above can be called different things. What’s important to know is that the lender is trying to pass costs along to you and you are trying to get the loan for as little cost as possible.

For instance, if the lender charges every borrower a $300 underwriting fee, what they have essentially done is used your money to cover their overhead expenses, especially since most underwriting is automated to a great extent and the underwriters only review marginal cases in many banks.

You probably will not be able to get out of paying any of the following fees:

Flood certification fee
Recording Fees
Title Insurance (for the lender)
Title Exam or Title Search
Appraisal Fee
Credit Report fee

The recording fees are those that the bank incurs to “go down to the courthouse” and file the mortgage/lien on the property. It’s essentially a tax that county governments charge, or tax, to keep track of who owns property and who has a loan on the property. When you go to sell property you will pay a conveyance fee (at least in Ohio you will) and it’s usually based on the sale price. Some lenders will waive the credit report fee, I listed it under the “non-negotiables” because it’s usually only about $16. And when the bank is trying to sock you with $175 underwriting fees and $300 processing fees, why fight over the $16 charge… go after the bigger ticket items.

I recently went to refinance and I liked my new interest rate, but I didn’t like that it was going to take over two years to recoup my closing costs in the reduced monthly payment. (What I mean is, if my payment went down $100 by refinancing but I had to incur $2,400 in closing costs on the loan to refinance, it would take me 24 months to recover my closing costs in that lower rate loan and lower monthly payment.) The loan officer was able to knock off the $175 underwriting fee without even going to his manager or consulting with anyone… so the loan officers have some say in the fees. Just make sure you tell them you will be shopping around for the best deal (and stress to them that by “best deal” you mean in terms of lowest closing costs AND lowest rates).

As always, I welcome your comments and feedback…

May your deductions be many and your audits be few. I loathe filing my taxes so you will notice this is one area of finance I usually don’t touch in my blog! Now let the countdown begin till we receive those “economic stimulus” checks/direct deposits!

Happy filing!

When we think about credit, there are certain types of borrowers that are less risky than others. Any loan backed by the government in some way (e.g. student loans, FHA or VA home loans, small business - SBA - loans) are generally less risky in nature than similar loans outside of these programs. And with the current credit market crisis in full swing, the spread in risk between government backed loans and their counterparts are even greater.

I recently touched on banks and lenders wanting to diversify and seek out other types of loans in my blog on January 3rd, 2008 (Banks Ditch Home Loans for Student Loans). Just three short months later, on Wednesday, April 9th, 2008, I opened up the Wall Street Journal and found an article on the front page of the Personal Journal page (D1) entitled “Credit Crunch Hits Private Student Loans.” Now, these aren’t your government-backed student loans; rather, these are the kind you get when you’ve maxed out the amount that the government will loan you. These loans help students that otherwise would be putting payments for books and tuition (in addition to the usual beer and pizza) on credit cards.

It seems that lenders are suddenly finding these loans aren’t the instant savior to the banks’ balance sheets that they thought they were, for a myriad of reasons. Money is becoming more expensive. The banks have to pay interest to the source of funds that they turn around and loan out, i.e. the capital markets. If a bank does not want to pass along increased costs to its customers it can instead choose to restrict the issuance of loans to higher credit customers, and thus the customers that represent a lower default risk. Regardless which path the bank pursues, or if it’s some combination of the two, we are still seeing a contraction in the credit market for student loans that is only being somewhat offset by the federal government increasing the amount that students can borrow in the federally-backed loan program.

What will be next? We’ve already seen higher costs or restricted lending practices with respect to real estate. Now private student loans are feeling the sting.

Car loans? Yes, car loans should be an interesting line of credit in the market considering all of those 0% new car loans that were freely available a couple of years ago. Car loans are still quite cheap considering the terms of the loan are often 36 months to 60 or 72 months. But I fully expect auto loans to climb at least 1 point but up to 3 points in the coming quarter to six months as credit markets tighten across the board.

With the auto industry is already hurting, higher interest rates on loans won’t help that sector recover anytime soon. Regardless whether you’re Toyota, GM, or Ford, you still don’t want to be in a business where consumers’ have less buying power and will therefore think twice before pulling that new sedan off the lot.

Steer clear of the auto industry related stocks for a while. These stocks won’t be a buy until credit becomes more readily available and incomes start to rise again.

As always, I welcome your feedback…