Monday, February 27, 2012

How to save on mortgage closing costs

Shop around before choosing a mortgage lender
Shop around before choosing a mortgage lender, but don't stop there. When you receive your good-faith estimate of closing costs, or GFE, the negotiation hasn't ended.

The lender or mortgage broker is required to give you a GFE within three working days of accepting your loan application. The GFE comes in the form of an itemized list of estimated closing costs for everything from the lender's fees to the appraisal charge to the title insurance premium to a partial month's interest payment.

The lender or broker charges some fees, and third parties charge others. The first step is to find out which are loan-origination fees and which are third-party fees. Don't guess. Ask the lender or broker.

Simple advice, but a lot of loan applicants don't follow it.

On the GFE, fees are categorized by numerical codes ranging from the 800s to the 1300s. Most of the negotiable lender-charged fees are in the 800s: application, origination, commitment, loan discount, broker, tax-related service and underwriting fees.

Third-party fees

Fees charged by third parties are trickier to negotiate. A few third-party fees pop up in the 800s section of the GFE: those for the appraisal, credit report and inspection. The lender is supposed to pass along these charges without marking them up. Theoretically, they are negotiable and you can ask the lender to seek good deals on these three items and pass along the savings. In practice, you probably won't get a break on those services because the lender has contracted for them at a set price.
What's your home worth?

You can realize some of your biggest savings by negotiating the items in the 1100s section of the GFE: title insurance, title search, title exam, attorney's fees and settlement fees. Most borrowers use a title company recommended by the real-estate agent or lender. But you don't have to. You can shop for title insurance and settlement services, just as you shopped for the house and for the loan.

Be prepared for resistance. Some lenders have business affiliations with title companies, and they'll pressure you to keep the title work in-house.

Title insurance, settlement services

Where you shop for these title-insurance and settlement services depends on where you live, because different places have different ways of closing real-esta

te and mortgage transactions. In parts of the Northeast, closings are conducted in lawyers' offices. In some places, including Southern California, closings take place at escrow or mortgage companies. In much of the country, closings take place in the office of the agency that sells title insurance.

Government regulation can limit your negotiating room. In Texas, the state sets one overall fee for title insurance, title search and settlement services, so title agencies compete on service, not price. Regulations aren't as restrictive in most other states, and you could save hundreds of dollars in settlement services by shopping around.

And don't forget to shop for hazard insurance -- item No. 903 on the GFE. Compare offers for homeowners insurance policies, either on your own or with the help of an insurance agent. Make sure the insurance company and settlement agent communicate with each other. You're not going to get that mortgage without proof that you have a homeowner's policy. That requirement is not negotiable.

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