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As with many things in this world, closing costs and discount points can be negotiated. But it’s tougher for the borrower to obtain large concessions unless there are trade-offs with the lender.
For example, the lender may be much more willing to reduce closing fees or require fewer discount points if the borrower is well qualified and is making a substantial down payment. In addition, if a higher interest rate is being charged, it could bring other concessions from the lender.
The lender may be willing to entice a borrower by offering low fees when the company is seeking a larger business market share or introducing a new program. In addition, a lender may give incentives to faithful past customers, or to encourage a new borrower who may bring additional business to the lender.
Low fees, however, can be smoke and mirrors obscuring an overall higher interest rate or other lender benefit. As in the previous questions, asking the lender to compare different financing options is the best approach in determining the true cost of borrowing. This can be done in a matter of minutes, using the lender’s computer or financial calculator.
What types of loan costs generally vary widely from lender to lender?
Fees are as different as the lenders who charge them. The major differences can be found in the following three major categories:
1. Loan origination fees: Many companies don’t charge this fee, but some do. It’s usually considered another point ( 1 percent of the loan amount) and can make a seemingly great loan package a bad choice. If charged, this is also a fee that may not be explained thoroughly up front.
2. Separate application fees. Most companies include the application fee in the out-of-pocket expense quote; others have this as a separate fee (of several hundred dollars), which many not be explained until the borrower applies for the loan. Borrowers should ask about this when calling to check for rates and costs as the amount can vary significantly among lenders.
3. Miscellaneous fees (often called “fluff fees” or “garbage fees”). As their name denotes, these are the most extraneous and negotiable of the bunch! They include document prep fees, courier charges, notary fees, administrative fees, document review fees, etc. The gravest problem here lies in that these fees do not have to be factored into calculating the Annual Percentage Rate (APR) quoted to the borrower. So it’s totally possible that a lender quoting a low interest rate is actually making up for it by charging tons of garbage fees! Spend time reviewing the Good Faith estimate provided to you by the lender before committing to a certain loan program.
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