Closing Cost Info

Many homebuyers mistakenly arrive at closing unprepared for a laundry list of major and minor fees that are a routine part of any home purchase. This can be because the lender increased fees on lender-controlled aspects of a transaction, or because a buyer chose a third party (appraiser, inspector, attorney, title company) that might charge higher prices than those estimated by the lender.

Fortunately, new rules and regulations provide more clarity on the costs that borrowers can expect to pay at closing. As a rule of thumb, homebuyers can expect to pay closing costs equivalent to 3 percent to 5 percent of their loan amount, says Guy Cecala, publisher of Inside Mortgage Finance, a Bethesda, Md.-based mortgage research firm. This is money that the homebuyers will spend in addition to their down payment, and those stretching to buy should know that this is money they'll need in addition to the savings reserves that some lenders require. (In other words, raiding your savings on closing day to pay unforeseen costs may not work out!)

So how can you avoid such surprises at closing? There are several steps you can take: #mini_module { width: 265px; height:220px; border: none; float:left; margin:10px; font-size:12px;} #mini_module img {border:none; width: 265px; height:131px; border: none; margin:0px; } #mini_module .mini_title { margin: 0px; padding:0px; width:265px; height:131px;} #mini_module .mini_main { margin: 0px; padding:0px; width:265px; height:85px; background: transparent url(http://www.aolcdn.com/travel/bg-short)} #mini_module .mini_item {padding:12px 0px; margin: 0px 20px; border-bottom:1px dotted #CCCCCC;} #mini_module a { color: #49A3CA; text-decoration:none; } #mini_module a:hover { color: #F98419; text-decoration:underline;}
First, before you make an offer on a home, discuss with your agent whether you can negotiate with the seller to pay some or all of your closing costs. Many buyers who are stretching to finance a down payment make an offer that's slightly higher and ask that, in exchange, the seller pay some or all of the closing costs. (Essentially, this amounts to financing closing costs within the mortgage loan.) Sellers eager to complete a transaction may offer to pay some closing costs in order to expedite a deal, or price their home slightly high on the assumption that they'll be helping a buyer with closing. If a seller commits to pay some or all of closing, Cecala recommends getting it in writing and appending the seller's commitment to HUD loan documents so that the seller is held to their promise.
 

Second, make sure you get -- and carefully review -- the Good Faith Estimate that your lender must provide within three days of your loan application. This paperwork will describe to you the fees associated with your loan, ranging from lender-related fees (such as loan origination fees) to outsiders' fees required to complete your transaction (inspection, appraisal, etc.). A good faith estimate is just that -- an "estimate" -- and some costs cited in that estimate can change. But as of January 2010, the government made it illegal for some of those costs to rise and capped other cost increases at no higher than 10 percent.

Costs that cannot increase include points (once an interest rate is locked), loan origination fees and transfer taxes. The costs that can, but by no more than 10 percent, include any services required by a lender, title-related services, and government recording charges. Other costs that can change include services that the buyer selects, such as extra home inspections, title services not required by the lender, homeowner's insurance, and escrow deposits.

Third, get more than one Good Faith Estimate! Because lenders all use the same form to provide customers with the numbers, it's possible to compare the estimates of various lenders, and to negotiate with them on some fees.

Finally, read your HUD-1 Settlement Statement closely, and ask that your lender provide it well before closing. The HUD-1 Settlement Statement is worth comparing with your Good Faith Estimate. You should feel free to ask your lender about any discrepancies or price adjustments you notice, so that you're prepared and well-equipped to close with confidence.

"You do have recourse after the loan closes if you find out you've been overcharged," says Cecala.

DOCUMENTS AND FEES YOU SHOULD EXPECT AT CLOSING
 

• Bank note: If you're closing on a house or condo it's called a mortgage. If it's for a co-op it's called a security agreement. The security agreement or mortgage "puts teeth into the note." A note is a piece of paper that says I borrowed the money and I will promise to pay it back. The security agreement or mortgage says what the bank will do if you don't pay it back.
• Transfer documents: For a co-op, those are co-op documents, which are a proprietary lease. For a condo, the unit condo power of attorney gives the condominium limited power of attorney to conduct the business of the condo. A house does not have a transfer document
• Hud-1: Discloses fees and costs