Unnecessary Closing Costs - Mortgage Tips to Save Money
Unnecessary closing costs are charged to unsuspecting borrowers on almost all mortgages that close. Closing costs can be broken into three general categories, costs that the lender charges, costs that third parties charge and money that is paid on your behalf i.e. taxes and insurance. Due to the scope of this article, we are unable to go into detail in each category. However, there will be a link at the end of this article for a tutorial that does.
First and foremost, “no closing costs loans” do not exist. Like the medical field, mortgages have become an industry of specialized sub-contractors, each sharing a piece of the pie. Most mortgage companies have contract underwriting, title companies, escrow agents and some even sub-out the processing. All of these services represent a cost to the lender, all lenders. Also included in that list is the appraisers, inspectors, surveyors, state taxes, local taxes and of course there are the escrows, thus we have closing costs.
In days gone by, banks would hold their loans to collect the interest and make a profit; this allowed them to recoup the closing cost over time. This isn’t true anymore; banks now securitize their loans by selling them on Wall Street to raise capital to make more loans. Therefore, since the banks are not holding their loans to recoup the cost of originating the loan, the costs must be built into the interest rate or the closing costs. Now that we are clear on that, we can get on with the tips to avoid unnecessary closing costs.
Third Party Charges - When you take out a mortgage through a lender, nine out of ten times you will use their title company; this is the company that will charge you for the physical closing, the title and title insurance. For simplicity’s sake, almost all lenders will use the same title company. Due to the captive nature of the title company’s clients, namely you, they are free to charge whatever fees they like, and most of them do. Very few people scrutinize the title fees at the closing table; they are usually focused on the lender’s fees.
One way that you can avoid unnecessary closing costs is to open up the phone book and shop different title companies. Before shopping, ask your lender for a “fee sheet” from the title company he uses, he will know what you mean. Call different title companies and compare the rate sheets. Pay special attention to the title insurance, this is where most of the title companies like to over-charge. I have had borrowers save as much as $900 by using a different company.
Lender Charges - When you look at the good faith estimate before closing, and you’d better, you will see that all of the fees are grouped into sections, and each section has a corresponding set of numbers. For example, 800, 801, 802 and so on. For the most part, the lender only controls the 800 block of fees.
