Q: I looked into three separate lenders to try to get a refinance and I got three different sets of figures, with very different costs for appraisals, loan fees and even courthouse fees.  I would think that at least the courthouse fees would be the same.  How should I evaluate these three lenders when I make my decision?  

A:  First of all, congratulations for getting WRITTEN good faith estimates from different lenders before you make your decision.  Some borrowers simply get quotes over the phone when shopping for a mortgage.  But interest rates and "points" tell only part of the story.  Administrative "Junk fees" can add hundreds of dollars to your total closing costs.  When comparison-shopping, be sure to get a full cost breakdown in writing so that you can see the total picture.

     Another reason to get estimates in writing is that it may help you avoid the "bait and switch" artists.  Some unscrupulous loan officers will quote very low interest rates over the phone and pressure you to hurry down for an appointment.  Once they have you in their office, they attempt to sign you up before revealing the full costs of the loan program they are offering.  If you ask for a written quote first, that may be the last you hear from them.

     Once you get written rate quotes and closing cost estimates from the lenders you can compare the bottom line cost of each lender -- assuming they reveal all of their costs on the "Good Faith Estimate."  Some mortgage brokers only give you THEIR closing costs.  They do not include costs charged by the ultimate lender such as underwriting fees, document preparation fees, etc.  These fees can add hundreds of dollars to your total closing costs.  Be sure to ask if there will be any other costs paid at closing that are not disclosed on the written estimate.

     A key point to remember is that a Good Faith Estimate is just that – an “estimate.”  It is NOT a guarantee.  The accuracy of the estimate is only as good as the “good faith” of the person making the estimate.  Therefore, I think it is wise to ask the loan officer if they are willing to guarantee that your final closing costs will not exceed the costs quoted on the Good Faith Estimate.  You might even ask them to give you a guarantee in writing.  That may prevent unpleasant “surprises” at closing.

A couple years ago I saw the results of a consumer survey in which 40 percent of the homebuyers said they found fees on their final closing papers that had not been disclosed to them ahead of time.  Of course, by the time they get to the closing table it was too late to go out and find another lender so they were forced to pay the excess fees.

The real heart of your question is, "Why do closing costs vary so much from lender to lender?"  The answer is simple:  The mortgage companies have different overhead costs and profit expectations.

Banks have to pay for big fancy buildings downtown, while mortgage companies can be as small as a one-person office.  Some mortgage brokers are happy making a gross profit of only one point (one percent of the loan amount), while others make two, three or four points on each loan. 

Closing costs such as appraisal fees are fairly standard.  A single-family residential appraisal costs $250 to $400. So if you are being charged $600 for an appraisal on your home, the lender is padding that cost to increase their profit margin on your loan.

Be an informed mortgage consumer.  The more you shop, the more you'll learn.  This is a very competitive mortgage market. Once you weed out the over-priced lenders, you will find that most of the legitimate mortgage companies offer approximately the same loan rates and fees on any given day, with only slight variations from company to company.  In then becomes a matter of selecting the loan officer with whom you feel most comfortable.

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