What do Mortgage Lenders Mean by Settlement?

Settlement is the term mortgage lenders and realtors use to describe the final meeting where your future home moves from the current owner to you. It is, after all, a legal transaction. Here’s a list of most of the items common to every residential real estate transaction:

Every lender will likely require the following:

  • An appraisal by a lender-approved vendor
  • A survey of the property to assure boundaries
  • An electro-mechanical and structural inspection of the property
  • A pest inspection to assure there are no active termite infestations
  • A title search to assure that the current owner has clear title to the property being sold
  • Homeowners insurance

Each of the above requires a specialized professional to provide the policy or service. With the exception of the appraiser, most lenders will allow you to use any state-licensed service provider. Beware of junk fees. For example, if you see a $250 Loan Application fee AND a $300 Underwriting Fee AND a $50 per applicant credit report fee, your lender is adding questionable fees, because all of these mean the same thing. “Underwriting” is what the lender is doing when it looks at your credit report and determines if you can be approved for this loan.

I once found $575 worth of questionable fees in a good faith estimate. These were for “photocopying,” “filing” and “document delivery,” among others. One has a right to expect the underwriting fee to cover all of these activities. When I questioned the lender about these junk fees, he removed them immediately. Don’t be afraid to politely challenge something that makes no sense to you.

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