Finding Hidden Costs on Your Closing Statement
by Sandy Gadow
Throughout the closing process, you will have been given various documents, some being mandatory government disclosure documents. These disclosures are meant to keep you fully informed in regard to the costs you will or may incur in your closing. Among these documents may be a Good Faith Estimate of Closing Costs and a HUD-1 Statement. You could also receive an explanation of mortgage broker fees, if you engage a mortgage broker to help you find a loan. Many of the fees disclosed may overlap or be the same fees, such as an appraisal fee, origination fee, escrow fee or title insurance fees.
There are other fees, such as courier fees, notary fees, documentation fee, overnight delivery fee, points, processing fee, which may be duplicates of other fees, or which are fees which the originator has marked up to add to it's profit margin. These are the fees, sometimes called hidden fees, which you may overlook or not feel you have the right to question. You do have that right.
Let's look at the fees typically disclosed on the Good Faith Estimate form. This is the document which you will first receive if you are applying for a federally related mortgage loan. It's purpose is to give you an estimate of the loan fees you might have to pay at closing. You will want to compare the fees found on the Good Faith Estimate form with those fees listed on the HUD-1 Closing statement, which is given to you at the time of closing. A few of these fees, such as the credit report fee or the appraisal fee may be required to be paid prior to the closing, but in general closing costs are paid at the time the sale is finalized. It is wise to question the fees listed on the Good Faith Estimate form, as once stated on the HUD-1 Closing statement, changes may delay the closing or you may feel it is too late. A delayed closing may require loan documents to be redrawn, the move-in date to be changed, or one of the parties in the transaction may not be available for signature.
The first category of charges listed on the Good Faith Estimate Form are those items payable in connection with your loan. These may include an origination fee, points, appraisal fee, credit report fee, mortgage broker fee, underwriting fee, processing fee, courier fee, and wire transfer fee. An origination fee and points are typically a set fee which you have agreed to pay in order to obtain your loan. It may be a percentage of the loan amount, say 1%, or it may be an agreed on amount. In some instances, the lender may not charge either of these fees. The origination fee and points are deductible as an expense item in some instances, but must be amortized over the life of the loan in others. You will want to weigh your options when agreeing to pay this fee. Oftentimes, you can "buy down" or reduce your over-all interest rate by agreeing to pay points. Take into consideration the length of time you will anticipate keeping the loan and weigh the benefits of paying these fees.
An appraisal fee and a credit report fee are typically not negotiable, as the lender or your mortgage broker will order these. Even though you may have an appraiser which you like and will offer you a reduced fee to perform the appraisal, the lender may require that the appraisal be performed by one of their "approved" appraisers. If you do, however, have an appraiser which is considerably less costly than the lender's appraisal company, you appraiser can typically become certified by your lender by a simply providing the lender with certain licensing certifications. Using your own appraisal company may save you several hundred dollars in appraisal fees.
The mortgage broker fee listed on the Good Faith Estimate form is a negotiable item, a cost which you and your mortgage broker will agree upon when you apply for your loan. The lender's inspection fee and underwriting fee and processing fee may be somewhat negotiable, but many lenders stay fairly firm on these fees. You can always ask and see if they will reduce them down or waive them altogether.
Courier and wire transfer fees are typically charged for transferring loan documents to the escrow closing company and wiring the loan proceeds to the closing officer. You may ask that these be reduced or waived. Ask if your lender has the ability to transfer the documents electronically. This may save you on these fees. Also be sure to verify that the closing agent has not marked up these fees at the time of closing.
The next group of fees listed on the Good Faith Estimate form are items required by the lender to be paid in advance and reserves required to be deposited with the lender. Look these other carefully, checking the calculations and comparing the figures with the amounts you were quoted for interest, mortgage and hazard insurance. Verify the property taxes.
Following the reserves required to be deposited into escrow, the government recording and transfer charges will be listed. These are fees which the government charges to transfer the property and record your loan and purchase and they are not negotiable.
The next list of charges may be survey fees, pest inspection or property inspection fees. Verify that these fees are exactly what you agreed to pay. Remember to look for any credits which the Seller agreed to give you on these costs. Many of these inspection fees are negotiable, and either Buyer or Seller may pay them.
The last category of closing fees are the title charges. These relate to the fees charged by the title or escrow company closing your purchase. There will be a settlement or closing fee, an abstract or title search fee and a title examination fee. Ask about these with your closing agent and ask if any of them can be reduced. The title insurance fees will then be listed. Be sure to check if you qualify for a "re issue rate" or a reduced fee. Oftentimes when title on a property has recently been searched, within the last two to five years, the title company will offer a reduced rate. If your transaction is a refinance, the lender may allow you up to a 60% discount off the standard published title insurance rate. Keep in mind that title insurance rates are state specific, and some states may impose a minimum title insurance fee, while others may not.
The next listing of fees will include a document preparation fee, notary fees, attorney fees, and other miscellaneous fees. Look these over carefully. Notary fees can be waived and attorney fees should be the same as you agreed upon initially. If these fees change, question the reason for the adjustment.
While questioning your closing costs takes some time and effort, you have the opportunity to save several hundred if not thousands of dollars at closing time. The small fees of $75 up to $300 may seem somewhat insignificant in relation to the total purchase of your new property, but when added together, they can make a difference. Every savings you make at the closing will be money well spent. This money can be used for repairs, remodeling, or furture expenses that come with owning a property.
Sandy Gadow, a frequent guest speaker on national radio as the escrow expert, has more than 25 years experience in escrow, title and real estate. A licensed mortgage broker and real estate sales associate, Sandy is a member of the American Land Title Association, the California Escrow Association, and the National Association of Real Estate Editors. She is the author of The Complete Guide to Your Real Estate Closing and a featured columnist at realtytimes.com.