Although lenders are required to send closing costs estimates to loan applicants, the entire concept of closing costs can still be relatively confusing to potential borrowers. In this informative interview, Doris Phillips - founder and President of RealSource LLC - simplifies the concept of closing costs and explains what you need to know before closing on your mortgage loan.
What Are Closing Costs?
Closing costs are fees that a buyer or seller has to pay in a Real Estate transaction above the loan/sales price. Examples of closing costs include, but are not limited to:
- Title Insurance
- Recording fees
- Document or Transaction Stamps or Taxes
- Survey fee
- Brokerage Commission
- Mortgage Application Fees
- Appraisal Fees
- Inspection Fees
- Home Warranties
- Pre-paid Property Insurance
It is very important to talk to your Realtor® and Lender since they are the ones who typically order these services. Know who they use and get quotes of you own for comparison. For the most part, these items can be purchased from many different sources and the prices will greatly vary. It has been my experience that if someone insists that you have to use their people then you probably shouldn't.
Can People Avoid Closing Costs?
No, there are certain services that will have to be done to process the loan. These services must be paid whether they are included in the loan amount or paid out of pocket by the seller, purchaser or lender. Be careful when rolling the closing costs into your loan as it will eat up your equity. Also, you are less likely to manage the cost of these items as closely if you are not paying them at closing.
Again, these costs vary widely and you should know how much they will cost in advance and shop around. The lowest cost is not always the best deal and service, but neither is the highest. Ask for referrals and a copy of their licenses as well as proof of Errors and Omissions insurance in the event that there is a mistake made.
What Are Junk Fees?
Junk fees are fees that the originator or lender collects. Examples would be: settlement fees, signup fees, underwriting fees, funding fees, translation fees and messenger fees. These fees can really add up and sometimes the client is charged a higher fee than is necessary. Ask your lender what fees to expect up front and don't be afraid to talk about money. Ask for a good faith estimate and ask questions about anything that you do not understand.
Do Some Lenders Charge More Than Others for Closing Costs?
Yes, some lenders charge for items that other lenders do not. These fees can include document preparation fees, application fees, and processing fees. Most lenders charge a percentage of the loan amount. The percentage can be negotiated up front although this is something that is not usually mentioned.
Does The Cost of Closing on a Mortgage Vary Greatly From One State to Another?
Yes, each state charges differently for recording the mortgage. Also, the closing fees charged by the closing agent vary depending on location.
What Is Title Insurance?
Title insurance is protection against loss arising from problems connected to the chain of title to your property. The policy that is issued is similar to a Homeowner's or Auto Insurance Policy.
Before you purchase a home, it may have gone through several ownership changes, and the land on which it stands may have gone through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. Some examples are:
- Forged documents
- Unrecorded deeds
- Unpaid liens
Why Do Buyers Need Title Insurance?
A buyer needs title insurance to protect his or her investment!
What Other Advice Do You Have Regarding Closing Costs Estimates?
Choose a lender, Realtor® and closing agent wisely - ask around. It should be an interview process just as you would for an employee. Ask how long the process generally takes, a what are costs involved, and what company will be used to supply the services required. Ask questions about anything that you do not understand. Once Again, do not be afraid to talk about money since it is your money after all.
About Doris Phillips
Doris Phillips is the president and founder of RealSource LLC, pioneers in real estate Contract-to-Close transaction management.RealSource provides transaction management for realtors and lenders to more efficiently move contracts to a smooth closing.
The firm also provides back office and marketing support to real estate service providers, such as title insurers, appraisers, surveyors, lenders, pest control specialists and home inspectors. In 2008, the firm opened its first in a new line of closing centers featuring Pampered Closings(TM), designed to make closings more comfortable and positive for everyone involved.
Contact Doris through her company's website or by calling (205) 682-7655.