Which Site's Costs Do You Believe?

September 18, 2000, Revised October 2008

"I just compared fixed-rate mortgages on two different internet shopping sites. Their fees were the same except that site A listed something called a state tax stamp for $7120. Otherwise, A offered the better deal. Site B mentioned only a $25 state tax recording fee? Which do I believe?"

Take the deal offered by site A. If there is a state tax, you will have to pay it regardless of whether the web site listed it or not. If there isn’t a tax, you won’t pay for one. However, as soon as you make contact with the lender, ask for a clarification.

Taxes vary state by state, and within some states they also vary by county. With so many jurisdictions, furthermore, the charges for some will change within any given year. Here are some illustrations: Florida imposes both a stamp tax and an intangible tax on the loan, amounting to $5.5 for every $1,000 of loan. It also imposes a stamp tax on a deed transfer amounting to $7 per $1,000 of sale price. On a $100,000 home purchase with a $90,000 mortgage, the total tax in Florida would be $1195. Wyoming, in contrast, imposes no transaction-based taxes at all.

Web sites may or may not have these charges right, but whether they do or not has no bearing on your payment. You pay the tax due, whether shown correctly on the web site or not.

The cost of title insurance is similarly diverse. I only looked at 17 states, but within this group the title insurance premium on a $100,000 loan ranged from $175 in Maine to $990 in Texas. In Tennessee, the premium was only $250 in all counties except four, where it was $447, $545, $595 and $620.

Maintaining an up-to-date data- base of such charges that covers all jurisdictions is a major undertaking. A few mortgage web sites do it, but most only provide estimates of varying degrees of accuracy.

One of the important conveniences the internet provides mortgage shoppers is information on settlement costs. Off the net, it is difficult to obtain such information until after an application has been submitted. Understandably, loan officers are reluctant to do the work for casual shoppers they are unlikely to see again.

But not all web sites are equal in their capacity to provide accurate information on settlement costs.

Almost all sites that accept applications accurately report fees paid to the lender or mortgage broker, or paid to third parties on behalf of the lender or broker. Most sites are managed by lenders and mortgage brokers who are reporting their own fees, or those of third parties providing services they have arranged. Multi-lender shopping sites collect this information from their participating lenders.

But it is a different story with other payments to third parties, such as title insurers

While borrowers certainly want to know what these costs are going to be, unlike broker and lender charges they are not subject to negotiation. On any given transaction, third party settlement costs should be the same, regardless of the broker or the lender.

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