Thursday, June 14, 2007

Closing Statement Review

The bottom line is this: the buyer is the one who has the most incentive to push for reduced closing costs.

The bank or broker certainly doesn't.

And your realtor will typically not be of much assistance. At that point the deal is done and his or her commission has been secured. Also, the realtor is motivated to maintain good relationships with brokers and banks for future deals. In fact, it is probably a good idea to look at any loan and title vendors your broker might be suggesting with an especially critical eye, as the broker may be putting his or her own interests regarding financing arrangements ahead of yours once an offer has been accepted.

This is a bit of a tricky game, because the bank or broker knows you will probably not walk away from closing on a house you want to purchase (or refi) just because they sneak in $500 of extra fees. With TICs, they know your options for securing financing elsewhere are limited, and in some cases, TIC groups are under pressure to refinance because their loans are coming due.

Keep a level head throughout the process. Practice the art of detachment. The bank or broker is counting on you to be emotionally involved in the concept of "home", not acting like someone who eyes the numbers as a dealmaker. Get your good faith estimate in advance and go through it line by line. Learn what each item means. Cross out their numbers and put in numbers you feel are reasonable and fair. Becoming familiar with closing statement line items in this way gives you a strategy for challenging the costs.

Here is an outline of the items that were on my recent refi closing estimate:

Loan origination Fee (Points)
Underwriting Fee
Bank Fee
Tax Service
Flood Cert
Wire Fee
Attorney Review
Appraisal Fee
Escrow Fees
Additional Charges
Overnight Service
Notary Fees
Title Insurance
Environmental Protection Lien
Recording Fees

After receiving the first estimate I had a talk with the loan officer. He agreed to eliminate the Bank Fee (-$300) and Additional Charges (-$75) and reduced the Underwriting Fee (-$100), Appraisal Fee (-$75), Title Insurance (-$300) and Escrow Fee (-$100). So overall I saved almost $1000. Small change in the context of a home mortgage, but why pay anything that you don't have to.

Also, if at all possible, I recommend paying the closing costs out of pocket. In other words, write a check for your closing costs. The bank will want you to roll them up into the mortgage, because they hope to collect interest on those fees for a good many years. Paying a few thousand dollars now may hurt a little bit, but in the long run you will be saving a lot.


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