Fees to expect at settlement


April 11, 2004

Dear Mr. Azrael:

I have been reading about junk fees and markups when settling. Is this a practice in Maryland?

Dear Reader:

Mortgage lenders are entitled to charge a loan origination fee as well as fees for a property appraisal and credit report. Typically, a lender would charge zero to 1 percent of the loan ("points") for an origination fee and $300-$350 for the property appraisal and credit report.

Many lenders also charge other miscellaneous fees (some people call them junk fees), which may materially increase the cost of a loan. These fees may be listed as a processing fee, underwriting fee and document preparation fee. Miscellaneous lender fees may vary depending on the lender. Often these fees are negotiable or offset by a lender credit due to market competition.

These add-on fees are not regulated by state law.

A federal law, known as the Real Estate Settlement Practices Act, requires that lenders provide all applicants for federally related mortgages with a good-faith estimate. The document includes a range of charges for specific settlement services the borrower is likely to incur in connection with the settlement.

The estimate of settlement charges includes fees of the lender and the title company for their services. The estimate must be made in good faith based on the lender's experience in the locality of the mortgaged property.

A good-faith estimate should be delivered or mailed to the loan applicant not later than three business days after the loan application is received or prepared. Before deciding to accept a loan, borrowers should carefully review the charges.

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