Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you’re looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal. Here are five fees to watch out for and how to avoid paying them:

Application fees

Just because an ad says “no application fee” doesn’t mean there’s no fee at the time you submit a mortgage application. Each lender gives different names to its fees, which makes it hard to comparison-shop. Fees paid outside of closing — meaning at the time you submit loan paperwork — typically include an application fee (an average of $252, according to HSH Associates, a mortgage-information company in Pompton Plains, N.J.), an upfront property appraisal ($331) and a credit check ($33). They may be listed separately or lumped together as a “document-processing fee.” To avoid overpaying, ask lenders for a good-faith estimate of mortgage costs. Though lenders are under no obligation to provide one, most will.

The yield-spread premium

One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments — referred to as the yield-spread premium — from lenders. Even a slight difference in rate — say, 6.779% instead of 6.495% — amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac’s MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Risk-adjusted rates

Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously — such as Florida or Las Vegas — and you can expect a higher rate. The good news is that each lender gives different weight to individual risk factors. So make sure to collect bids from various lenders.

Down-payment penalties

The days of zero down on a mortgage are over. Without a down payment of at least 20%, prospective homebuyers will undoubtedly get hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.) Also, if buyers can’t put 20% down, they’ll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.

Closing costs

The way closing fees are disclosed is, frankly, quite bad. That’s problematic, considering closing fees amount to 2% to 5% of a home’s price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer. Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees. Here’s how to keep these fees under control:

• Lender fees. Ask which expenses go into each fee, and challenge anything that seems unnecessary or inflated, such as overly high charges for faxing documents or overnight delivery. Be particularly cautious about fees prorated based on the closing date. Such fees are easily miscalculated, especially if the closing date changes.

• Third-party fees. Home-buyers also have to deal with title insurance companies, surveyors and inspectors, all of whom have their own fees. Comparison-shop at other local companies to ensure you’re getting a competitive bid. If you find a better rate, ask the lender to use that vendor instead.

This story was reported and written by By Kelli B. Grant for SmartMoney. Published Oct. 2, 2008

Who’s in charge?

A professional settlement agent orchestrates a closing. The agent files documents, pays taxes on your behalf, ensures every task is done and recorded in the time specified by law, and also may hire an appraiser, pest inspector and other professional services. The agent represents the buyer, the seller and the lender equally. In some states, the agent must be an attorney. In others, it’s an independent settlement or escrow company. (An escrow company is one licensed by the state to hold money and documents.) In many states, title companies — whose primary jobs are to make sure there are no claims on the property and to sell insurance guaranteeing that the title is clear — may be the settlement agent.

States’ requirements vary:

• In New York, only an attorney — usually a specialized “closing attorney” — oversees a closing.
• In Nevada, as in most states, title companies act as the settlement agent.
• In California and Wyoming, escrow companies are used.

The federal forms and rules used to disclose your loan costs and closing fees, however, are identical in every state:

• Your lender must give you a binding good-faith estimate, or GFE, within three business days after you apply for a loan. It shows loan costs and estimates your other closing costs. Your final origination charges and transfer taxes can’t vary from this estimate. Quotes for other services may vary by up to 10%. Bigger variations are a “tolerance violation” and the lender must credit you the difference within 30 days of your closing, says Cathy Blaszyk, vice president for lender services at Closing.com.
• At your closing, the settlement agent will give you a HUD-1 form showing your final costs.

How to shop

Closing costs vary greatly. In its 2009 survey of average total closing costs in 52 cities and states, Bankrate.com found a $1,579 difference between the highest-cost state, Texas, at $3,855, and Nevada, with the lowest average cost, $2,276. Most of these fees are negotiable, and you can shop separately for many of them. The consumer has to open their eyes, because they can save a lot of money. People spend more time shopping for a big-screen TV. Closing.com’s closing costs calculator lets you plug in home-purchase information to get numerous estimates and quotes on closing services from providers near you. By shopping aggressively, you might:

• Qualify for a better interest rate than you’d expected.
• Find that a loan offer with a higher interest rate is really the best deal when all closing costs are considered.
• Spot “junk” fees.
• Find lower rates on services such as title insurance, settlement services or inspections.
• Use these lower bids to negotiate better prices with your lender.

Start shopping for settlement services and for additional loan offers once you’ve made one mortgage-loan application. A lender must stick to its good-faith estimate for 10 days. The bank or broker can’t go back and make changes, which gives the borrower a chance to make comparisons. Don’t worry about hurting your credit score by making numerous loan applications. In “4 credit-scoring myths,” personal finance guru and MSN Money contributor Liz Pulliam Weston says that your FICO score will register multiple inquiries in a 45-day period as just one inquiry. Applying is free, except maybe for the cost of pulling your credit report — about $15, tops. Lenders can’t collect application or appraisal fees while you’re comparison shopping. Although recent changes in federal law make it harder for lenders to pad fees, you should still get expert help in reviewing offers and closing documents. The key is getting somebody who is trained and who can comprehensively look at it for you.

In advance, line up either of these:

• A real-estate attorney through the American Bar Association lawyer locator  or find referrals from a state or local bar association.
• A free, housing counselor certified by the Department of Housing and Urban Development (call 800-569-4287.

Read more at: http://realestate.msn.com/article.aspx?cp-documentid=25322086&page=2