One of the disturbing things that came to light during recent investigations into the credit crisis is that lenders often overcharge consumers when they take out mortgages or home equity loans. Before applying for a loan, know what closing costs to expect and how to reduce or avoid them, if possible.

When you fund a loan, expect to pay closing costs, because they go with the territory of securing a mortgage or equity loan. There's no reason, however, to get gouged. Here are some tips to help avoid paying more than is absolutely necessary.

Appraising your home

One of the big costs in the mortgage process is the price of the appraisal, which is a total necessity. The lender needs to know how much the property is actually worth for a new loan, or how much home equity there is in the property before refinancing.

It's all in the title

Another major expense is title insurance, which involves a preliminary search of the title history. This is vital, because without it, the buyer may inherit costly liens, or later discover that someone else has ownership rights by virtue of an old deed to the property. Unlike most appraisals, it may be possible to save some money on the title insurance policy.

Shop around for an affordable or competitively priced title insurance policy before applying for the mortgage. Specify the particular insurer on the mortgage application, and get the lender to agree to use that title service. If you wait until later, the lender will select the insurer for you, and that title policy may cost more than you need to pay.

Items up for negotiation

You should negotiate the closing costs, points, and lender origination fees. Lenders are eager to make solid loans after suffering recent losses, and they'll likely compete for your business. If you have good enough credentials to pass muster in today's stringent underwriting environment-when most borrowers get turned away-there's a good chance that you'll qualify for preferred client treatment. Ask for it, and you just might be rewarded.

Last, but not least, scrutinize the settlement statement. This is a written good faith estimate of your total closing costs, and is required by law. Request that a copy be provided at least 24 to 36 hours prior to closing; then review all costs with a fine-toothed comb. Don't overlook lesser items, like courier fees or document preparation. These relatively minor expenses can add up, and are often where the unreasonable costs are hidden. Ask for an explanation of every dollar's worth of charges, and if your lender can't justify fees, insist that they be removed.

To avoid the headache of scouring through the small print, many consumers take advantage of package deals that involve fixed costs rather than itemized fees. They're cheaper because lenders buy bundles of services at wholesale prices and pass along the savings. These days, every penny helps, and money saved at the closing table can be converted into valuable home equity.

    Published on July 17, 2008