Loan Estimates: Services You Can't Shop For

When you receive a Loan Estimate, some of the costs are fairly easy to understand. You probably expect to see your interest rate, projected monthly payment, and estimated cash needed for closing. Once you reach the detailed closing-cost sections, however, the document starts introducing services and fees that may be much less familiar.

One category is labeled "Services You Cannot Shop For." The wording can sound a little restrictive, particularly if you have already heard that homebuyers should compare closing services whenever possible, but there is a practical reason these charges are separated from the services you can shop for. Understanding the distinction can make your Loan Estimate much easier to read and help you know which expenses are within your control.

What Are Services You Can't Shop For?

Services you cannot shop for appear in Section B on page 2 of the standard Loan Estimate. These are generally services required in connection with the mortgage that are provided by someone other than the lender or mortgage broker, but for which the lender does not permit you to independently choose the service provider.

In other words, the lender has determined that a particular service is necessary and controls which provider will perform it. You are responsible for the applicable cost, but you do not have the same provider-selection freedom that you have with the services listed in Section C.

That distinction is what separates Section B from the appropriately named "Services You Can Shop For" section immediately below it. Both categories can contain services required to complete your mortgage, but your ability to select the company performing the work is different.

Why Doesn't the Borrower Choose Every Provider?

A mortgage lender is taking a financial interest in the property, which means it needs reliable information before the loan can move forward. Some services directly support the lender's evaluation of the property, borrower, or transaction, so the lender may require that the work come from a provider it selects or approves under its own procedures.

An appraisal is a common example. The lender needs an independent assessment of the property's value, but allowing a borrower to simply hire anyone to produce that appraisal could create concerns about independence, qualifications, and whether the appraisal satisfies the lender's requirements.

Similar considerations can apply to other services used to verify information about the property or loan. From the buyer's perspective, the important point is not necessarily why every individual provider was chosen, but rather recognizing that certain charges are required even though you do not get to comparison-shop for the company providing the service.

What Might Appear in Section B?

The exact list will depend on your loan and the property involved, so two buyers should not expect their Section B charges to look identical. However, common examples can include appraisal fees, appraisal management company fees, credit report fees, flood determination fees, tax-related research fees, certain homeowners association certification fees, and particular title-related charges.

Some government loan programs can also involve fees that appear in this area. Depending on the mortgage, other specialized third-party services may be required as well.

Rather than using a generic list to predict exactly what you will pay, use your own Loan Estimate as the starting point. Section B identifies the applicable services and the estimated amount associated with each one for your proposed loan.

An Appraisal Is a Good Example of a Non-Shoppable Service

An appraisal helps the lender evaluate whether the property's value reasonably supports the mortgage being requested. Because the home will serve as collateral for the loan, the lender has a significant interest in the reliability and independence of that valuation.

That does not mean the appraisal determines what a home is "really worth" in every possible sense. Buyers and sellers may value the property differently, and market conditions can influence what someone is willing to pay. The appraisal serves a more specific lending purpose by providing a professional opinion of value using established appraisal methods.

Since the lender generally controls the appraisal process, buyers normally cannot call several appraisers, compare prices, and choose whichever one they prefer. That makes the appraisal fee a useful illustration of what Section B is designed to show.

Credit-Related Services May Also Appear Here

Your lender needs information about your credit history when evaluating your mortgage application. Obtaining and reviewing that information can result in third-party charges that become part of the loan process.

Although you can monitor your own credit and choose services for your personal use, the credit information used by a mortgage lender is different from simply pulling a free consumer credit report yourself. The lender has its own requirements for the reports and information needed to underwrite the mortgage.

As a result, you generally are not asked to find a credit-reporting provider and submit a quote. If an applicable credit-related charge is part of the transaction, it may be included among the services you cannot shop for.

Why Are Flood Determination Services Necessary?

A lender may also need to determine whether a property is located within a designated flood hazard area. That determination can affect insurance requirements and other parts of the mortgage process, so lenders often rely on specialized third-party services to obtain the necessary information.

A flood determination fee is typically relatively small compared with major expenses such as a down payment, but it still represents part of the total cost of completing the loan.

This is a good example of why reading the individual lines of your Loan Estimate is worthwhile. A buyer might never think about flood-zone research as a separate service, yet it can be necessary for the lender to properly evaluate and document the mortgage.

Title Costs Can Appear in More Than One Section

Title charges deserve special attention because you should not assume that every title-related service is either shoppable or non-shoppable. Depending on the lender's requirements and the structure of the transaction, title services can appear in Section B or Section C of the Loan Estimate.

If a title-related service appears under Section B, it is being disclosed as a service you cannot shop for. If an applicable title service appears in Section C, it falls under the services for which you are permitted to shop.

That is why buyers should look at their actual Loan Estimate rather than relying on a blanket rule about choosing a title company. The document helps show where you have provider choice, and your lender can clarify its requirements if you are considering a particular title or settlement provider.

"Can't Shop" Does Not Mean the Fee Is Arbitrary

Seeing that you cannot choose the provider may naturally raise another question: if you cannot shop around, what keeps the cost from unexpectedly increasing?

Mortgage disclosure rules place restrictions on how certain estimated closing costs can change between the Loan Estimate and closing. In general, fees for required services that the lender does not allow you to shop for are among the charges subject to particularly strict limits, although permitted changes in circumstances can affect what is disclosed.

Those protections do not mean every number on your Loan Estimate is permanently frozen. Real estate transactions can change, and certain developments can justify revised estimates. However, lenders cannot simply treat the original figures as meaningless placeholders and increase covered charges without regard to applicable disclosure requirements.

Can You Do Anything About These Costs?

You may not be able to choose the individual service provider, but that does not mean you have no ability to compare costs during the mortgage process. Remember that the Loan Estimate is designed in part to help consumers compare different mortgage offers.

One lender's combination of origination charges, required services, interest rate, credits, and other expenses may look different from another lender's offer. You can therefore compare the overall loan packages even if you cannot independently replace the provider responsible for a particular Section B service.

This is one reason it helps to look beyond the interest rate when evaluating mortgage options. A loan with an attractive advertised rate can still carry different upfront costs from another mortgage, and those differences may become clearer when you review pages 1 and 2 of each Loan Estimate side by side.

Section B Is Different From Origination Charges

It is easy to assume that services you cannot shop for are simply another category of lender fees, but the Loan Estimate separates these costs for a reason.

Section A contains origination charges, which are charges associated with the lender or mortgage broker originating the loan. Section B generally concerns required services provided by third parties when you are not permitted to shop for the provider.

That difference may not change the amount of money leaving your pocket, but it does help explain where the charge is coming from. Understanding whether you are paying the lender directly or paying for a separate required service gives you a much clearer picture of the transaction.

How Does Section B Compare With Section C?

Section B and Section C can look very similar because both may contain individual services accompanied by estimated prices. The key difference is your ability to select the provider.

For Section B services, you do not independently shop for the provider. For Section C services, you are permitted to shop, which can give you an opportunity to compare companies and costs before making a selection.

Knowing that difference makes the entire second page of the Loan Estimate easier to navigate. Instead of viewing it as one long collection of fees, you can begin sorting the expenses according to who charges them, why they are required, and whether you have any choice about the provider.

What If You Don't Recognize a Charge?

Ask about it. Loan Estimates contain terminology that mortgage, title, and real estate professionals see every day, but most buyers encounter these terms only occasionally. You are not expected to instinctively understand every fee the first time you see it.

Start by asking what service the charge covers and why it is necessary for your particular loan. If you cannot shop for the provider, you can also ask your lender to explain how the service provider is selected.

Understanding the answer is more useful than simply accepting or objecting to a fee because its name sounds unfamiliar. Some relatively obscure charges reflect routine work necessary to complete the mortgage, while others may apply only because of a particular property, loan program, or transaction.

Review the Numbers Again Before Closing

Your Loan Estimate is provided early in the mortgage process, while your Closing Disclosure provides updated information as the transaction approaches completion. Comparing the two documents can help you understand what changed along the way.

Pay particular attention to charges that look different from what you expected. A change does not automatically indicate a problem, since legitimate circumstances can affect closing costs, but significant differences are worth understanding before you sign your final documents.

The goal is not to audit the transaction like an accountant. It is simply to know what you are paying for, recognize the major categories of expenses, and ask questions while there is still time to get clear answers.

Understanding Section B Makes the Bigger Picture Clearer

"Services You Cannot Shop For" may sound like one of the less exciting parts of buying a home, and admittedly, nobody starts house hunting because they cannot wait to study appraisal and flood determination fees. Still, understanding Section B can remove some of the mystery from your closing costs and help you distinguish between expenses you can control and those that are determined through the lender's process.

At Crescent Title, we believe a smoother closing begins with understanding what is happening before you reach the closing table. From title-related charges to the larger structure of your transaction, our team is here to help explain the title and closing process, answer questions about the services we provide, and help you move toward closing with a clearer understanding of what to expect.