Educate yourself to cut closing costs
ORLANDO, Fla. – June 12, 2009 – Home buyers dicker about appliances, cabinet styles and the move-in date, but often question little when it comes to a pricey part of their purchase.
Closing costs – fees paid at settlement – can add up to thousands of dollars.
Yet, the costs and settlement process are mysterious for many. Half of mortgage applicants in a 2007 Federal Trade Commission study could not identify their loan amount on settlement forms.
How do bewildered buyers figure out what’s supposed to happen and what they should be paying? In many cases, they don’t, or they take the word of the title company and lender.
To make sure you don’t overpay when buying a house, keep in mind that an economical closing begins with a good opening: start preparing early in the house hunt.
Alan Stacy, housing counselor with Consumer Credit Counseling Service of Greater Atlanta, says a dream applicant has her financial paperwork close at hand; boasts a minimum credit score of 720 for a conventional mortgage or 620 for an FHA loan; and has educated herself, perhaps on the Internet, about how mortgages work.
Norm Miller, academic director at the University of San Diego’s Burnham-Moores Center for Real Estate, says the savvy borrower will walk into the mortgage office with paycheck stubs, recent bank statements, two years of tax information and a printout of all savings account numbers, stock account numbers and cash-value insurance accounts.
“I’m going to come in with everything I can to make it easy for the lender,” Miller says. “That’s not only going to speed everything up dramatically, but you’ll probably be considered a more sophisticated buyer, and they’ll be fairly upfront with you.”
Well-versed buyers fare better at the settlement table. A 2008 Urban Institute study showed lenders appeared to make lower-price offers to borrowers who seem more familiar with market terms.
Bart Shapiro, deputy director of the U.S. Department of Housing and Urban Development’s RESPA office, which regulates settlement procedures, advises consumers to:
• Seek advice. Talk with relatives and friends who have gone through the mortgage process.
• Read. Newspapers, books and other media can acquaint you with real estate terms and the local market.
• Go online. Specifically, hit the HUD (www.HUD.gov), Federal Reserve (www.FederalReserve.gov) and Federal Trade Commission (www.FTC.gov) websites. All three offer free guides to mortgage closing costs. Also, check your state’s website for tips. In January, HUD will issue standardized closing forms that will make fees clearer to consumers. In the meantime, buyers should inquire about any fees they don’t understand.
• Shop around. Keep looking until you find a loan provider whose rates and approach you like. “Some folks are old school, and they prefer to do it face to face,” Stacy says. “Other folks use the phone or Internet, because you can work more quickly that way.”
If you’re refinancing, ask your current lender about a “streamline” refinance. Your current lender may not require a credit check, a full appraisal and other services that charge fees. One caveat: Streamlines sometimes carry higher interest rates than you’d get if you start again. Do the math.
Keep asking questions until you feel comfortable, Shapiro says, and don’t sign anything until you feel confident.
Ads for no-cost mortgages are too good to be true: If you see an advertisement that says “no closing costs,” what it means is they’ll finance the closing costs for you, says Miller. “They just mean there’s nothing out of pocket at closing.”
• Search for savings. Mortgage lenders and brokers are required by law to give you a good faith estimate within three days after you apply for a loan. Many will give it to you earlier. The GFE, which lists estimated fees you’ll pay at settlement, is divided into numerical sections. Look in the 800s and 1100s for fees that may be negotiable.
The 800 section lists administrative fees and fees for services your lender contracts for you – everything from checking your credit to appraising your property. Check for double-dipping and inflated fees. If you’re unsure about something, ask questions or request a discount.
There’s some wiggle room for negotiating in the 1100s section. You may be able to whittle hundreds of dollars off your costs by informing your lender upfront that you’ll secure title insurance on your own. You are not legally bound to use the lender’s company, but you should make your intentions clear so they don’t start a title search, too.
• Haggle lightly. While you can quibble about every line item, experts say things will probably go more smoothly if you make it clear that you’re a comparison shopper who is crunching all the numbers.
“You want to say the same thing to each lender,” Stacy of Consumer Credit Counseling says. “You want to say, ‘Give me your best numbers. I’m giving you one chance to give me your best-faith estimate.’ “
• Go with your gut. Select a lender or broker you trust, even if the fees are a few dollars higher, because the good faith estimate is just an estimate.
“There’s nothing that’s going to happen when you walk into that mortgage office that you can depend on. They can quote anything they want, and there’s no way you can hold them to it,” says Jack Guttentag, a professor emeritus at University of Pennsylvania’s Wharton School who runs The Mortgage Professor website (www.mtgprofessor.com).
• Don’t quit investigating too early. Request a HUD-1 form before settlement day. Federal law requires lenders to give mortgage applicants a copy of their settlement form, called a HUD-1 form, at least one day before closing, if applicants request it. Many lenders won’t provide it until settlement day unless prompted.
Comb your HUD-1 for any numbers that are different from those on your good-faith estimate. Check for accounting errors, too. If you spot discrepancies, accounting errors or new fees, bring them to your lender’s attention.
Copyright 2009 USA TODAY, a division of Gannett Co. Inc., Kathy Canavan.
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