How much does a mortgage cost? The answer depends on where you live. But no matter which your locale, chances are strong that you’ll pay more for a mortgage in 2010 as compared to 2009.

According to Bankrate.com and its annual Closing Cost Survey, a typical $200,000, purchase mortgage now carries an average $3,741 in closing costs — up nearly 37 percent from last year.

As defined by Bankrate.com, “closing costs” is defined as the sum of two numbers.  The first group is labeled “origination charges”, a category that includes such items as underwriting fees, application fees and processing fees.  These fees are paid directly to the loan originator’s company at the time of closing.

The second grouping of costs is labeled “third-party fees”.  Third-party fees include appraisals, credit reports, settlement fees and title searches — items paid in connection with the loan, but not paid to the lending bank or broker.

It’s unclear why closing costs appear to have escalated into 2010, but Bankrate.com suggest that recently-enacted federal lending laws are a culprit:

1. The new law requires loan officers to be accountable to a Good Faith Estimate’s accuracy. Bankrate.com’s prior-year surveys may have been “understated”, therefore, because of a lack of accountability.
2. The cost of federal compliance is high, and banks may be passing on compliance costs to consumers

To see the complete list of closing costs by state, including where Texas ranks, visit the Bankrate.com website.

Well let’s have a look.

Just the other day, I was having coffee with a potential client that was looking to buy a home, and she pulled out 4 different GFE’s (Good Faith Estimates) for me to have a look at.

Wow, talk about diversity! While I won’t name the companies (and believe me, I would LOVE to), here were just 3 things I noticed just right off the bat:

1.    Escrows reflected LESS than what the property’s tax rate really was
2.    APR was very misleading, and the most important was
3.    All 3rd party fees on each GFE were different

Now if you’re a seasoned home buyer or a First Time Home Buyer, things like this will definitely matter and will end up costing you a lot of wasted time, money, and effort if you aren’t careful.

My goal in this article is, in plain English and simply explained, is to:

1.    Break down the GFE
2.    When you should receive a GFE
3.    What to compare when comparing and how
4.    How to get the BEST deal

Breaking Down the GFE
So let’s begin by breaking down this thing, and trust me, this’ll be super easy.

The 800 section of the GFE is where you will see the lender, broker, and appraisal fees, respectively. No matter what the FEE is called (underwriting, application, administrative, etc), it’s being charged on the bottom line. If someone says, “We don’t have application fees!” making their offer seem more appealing, they can easily turn around and add a “Weekend Fun” fee. The rule is as long as it’s disclosed, it can be charged.

The rest of the sections (900-1300) are all 3rd party fees and cannot be controlled by the loan officer. Some of these fees are:

1.    Taxes and Insurance
2.    Title fees
3.    Escrow Impounds

This is why asking for a GFE before you take an application and talking about your financial parameters is just plain shooting yourself in the foot guys! I’ve had people ask me for an estimate before I could even say hello at times, in which I’ve respectively had to decline because I knew we were already headed into disaster.

When Should I Get a GFE?
By law, you should receive a Good Faith Estimate within 3 days of a written and complete application for a mortgage. Does everyone do it? (Chuckles) Nope.

What and How to Compare
So now it’s game time. You’re 18 days away from closing on your house and decision day is creeping up.

“Who do I choose?”

“Why are his fees different?”

“Is this rate too good to be true?”

Totally understandable questions- I understand you don’t want to be taken advantage of. Now let me show you how to compare and what to compare.

A Good Faith Estimate shows the interest rate, term, loan amount, and all settlement costs on the mortgage you are applying for. All of the items on the GFE fall into 3 categories listed below:

1.    Interest Rate
2.    Lender Fees
3.    Everything Else (3rd Party)

The interest rate simply depends on market conditions at the moment of locking it. Throw CNN, FOX News, and all other morning radio shows out the window when they are “predicting” where rates are going to go. I’ve had people call me up expecting a 0% (honest truth) because they heard it on the radio. People, if it’s too good to be true, it is. If you want legitimate and unbiased advice, feel free to call or email me. Following MBS (Mortgage Backed Security) trends and weekly economic reports, I have my finger on the pulse of what’s going on and have saved people tens of thousands of dollars by recommending “lock” or “float” options derived from my sources.

In regards to lender fees, they will vary just like with any product you buy. A vase at Wal-Mart will differ from a vase at Crate and Barrel. Why? Well each company has its own business model that they have to follow. That’s it- it’s not hard.

Since we’re become pretty good friends now, I’ll let you in on another little secret as well.

For the most part, Mortgage Broker fees are variable, where as Mortgage Banker fees are fixed. Brokers have to send out their loans to wholesale lenders that will fund your loan, so each lender will have different fee structures. Broker “A” can quote you $1,500 in fees, find out that same lender just went out of business, and now you’re exposing yourself to a change in charges. Mortgage Bankers will have more simplified fee structure and you should expect it to stay more constant. I am not saying one way is better than the other because the same can happen to a Banker if he has to broker out your loan, however it is just a little less likely in my opinion.

The rest of all the 3rd party charges will be determined by what other parties are involved. While you, the consumer, have the right to choose the title company, I highly suggest having your mortgage professional recommend a few that he/she uses. For some reason, realtors believe that they choose this part of the transaction (and some do a good job), however most do not. Throughout the entire finance process, the lender and title company are in constant communication to get your loan funded in the most efficient and snag-free way possible.

So, How Do I Get the BEST Deal Out There?
The easy and SIMPLE answer is…YOU!

You will ultimately determine the best deal that you get. Timing, advice, recommendations, and being a team player is needed to get the best deal.

Timing is HUGE these days! One of my current clients is taking about 2 weeks to send me his W-2’s, while his rate lock is going to expire in less than a week- Yes, that’s his bad!

And when it comes to rates guys, time is money. Rates move daily.Don’t expect last week’s rate TODAY!

Also, if you want to know what “rates are doing today”, don’t waste your time applying on a million places online, having 100 people call you and have a brilliant start to the conversation by asking “What is your rate?” Go to the local newsstand and pick up a paper, but remember, what is advertised and what you QUALIFY for are 2 totally different things.

Here are my 5 TOP TIPS I can give you:

1.    NEVER SHOP ON JUST APR!
Whoever recommends this to you may actually live in a van down by the river. Each lender calculates this differently, so you won’t be comparing apples to apples. Sometimes the numbers aren’t worth the paper they are written on.

2.    HAVE YOUR FACTS READY
For comparison purposes, used fixed costs for taxes and insurance with each mortgage company so estimates can remain constant.

3.    BE THE BOSS
In essence, what you are doing is HIRING your loan officer to represent you. So, why don’t you go through your own little “hiring process” with them? Ask about experience, references and the big question “How Are You Different?” from others. This will be the best tool.

4.    DON’T SHOP YOURSELF OUT OF THE MARKET
Don’t get greedy by waiting for that magical 0% like my friend.

5.    OVER-SHOPPING
If every new phone call causes a “Send me a GFE and I’ll let you know” reply, then you have what is called “Mortgage-itis”. This is the first symptom letting you know to stop and work with what you have, OR if you want, put things on hold for a few days. It’s just like cramming for a big test. Take a break.

In the end, you will always get what you pay for. Those who are cheap will get cheap. Those who pay more for a little better service will get just that. I’m not suggesting getting slammed with pointless fees for the sake of commission, however most everyone these days wants everything for free. It’s better to pay a little more for a service or product you can rely on, rather than just getting a cheaper price for something that may cost you even more money down the line. In the mortgage industry, what you ultimately pay more for is knowledge.

Tommy Xintaris is a Senior Mortgage Banker for Envoy Mortgage. He has over 9 years experience in finance. For a free opinion of your mortgage, you can email him at Tommy@TheRightMortgageGuy.com .