Closing Costs -Fair or Excessive?

You are ready to buy your home. You've saved for the
down payment and you know that you have to have some
money left over for reserves. You also know that there
will be some costs for various services to support your
transaction.

Then you are presented with a long list of fees and
charges. You don't know if they are necessary. You don't
know if they are reasonable. They are confusing and
mysterious and unclear.

Even after you are able to determine that the charges
are acceptable, you still want to be as sure as possible
that you won't be presented with additional charges just
prior to close of escrow.

The best way to assure yourself of this is to work with
someone you trust. You should actively seek referrals from
others who have gone through the mortgage process recently
and from your real estate agent.

Despite the press coverage of the unhealthy relationships
between unethical real estate agents and unscrupulous mort-
gage originators, the vast majority of real estate agents
are interested only in successful closings with the buyer
being well-served with honest dealings, competitive loan
terms and no-nonsense communication.

The professional real estate agents will know the mortgage
originators who are able to deliver quality service.

When you interview your prospective mortgage originator,
prepare some tough, direct questions for them. Assess
how they answer the question. If they are evasive, you may
find that you have someone who is unknowledgeable or
worse, someone who is deceptive.

You should be looking for someone who is transparent
about the process and who isn't defensive or evasive.
Clear communication should be an item high on your list.

The lenders are required to send you a "Good Faith Estimate"
of closing costs shortly after you submit a loan application.

It will include charges that are called recurring closing costs
that will include pro-rated interest on the new loan, pro-rated
property taxes, property insurance costs and the premium
for private mortgage insurance if required. If you have an
impound account for collection of taxes and insurance as
part of the monthly payments, your initial deposit to create
that account will also be shown.

A list of transactional costs, or non-recurring closing costs
will include loan points for discount and origination, escrow
fees, title charges, appraisal fee, credit report cost, loan
processing fees, underwriting charges, document prep-
aration fees, bank wire charges, courier fees, a charge
for notary/document sign-up and a few others.

When you receive this Good Faith Estimate, you should
review it right away. If you have questions or concerns,
contact your mortgage originator. They should be able to
answer your questions about the lender-related charges
at least. If they are experienced, they should be able to
give you a good overview of all the items on the Estimate,
the services that are being provided and an explanation
as to why they are necessary. Or, they should be able to
direct you to the appropriate escrow and title persons to
speak for their portion of the charges.

Once you have a clear idea of what to expect, let your
mortgage originator know that you expect to be informed
about any significant changes to the Estimate as soon
as they know. You can determine for your own purposes
what is significant, but make it clear to them what your
expectations are.

The escrow company will be pulling together figures from
all of the service providers as they approach the closing
date. You will be presented with a "Borrower's Estimated
Closing Statement" so that you know how much money
you need to bring in to close the transaction. Your escrow
officer can also tell you if the charges that are presented
are common for most lenders.

You will want to compare this to your Good Faith Estimate
to see how close the numbers are. If there are new line
items or if significant changes are now appearing, you will
want to contact your mortgage originator for explanation.

There are times when unforeseeable events occur that
affect closing costs. Contact your real estate agent as well
to determine that the new item was truly warranted
and unexpected. If it was foreseeable, or if the estimates
are not close, hold your mortgage originator accountable.

After all, they are the ones that deal with this every day and
they should be giving you a fair estimate at the beginning.

You do not want to have a request for additional money
to close presented to you just prior to your close of escrow.

If you follow this plan, you should be able to feel confident
that you have done everything you can to be prepared for
the closing. You will have a good idea of what to expect,
have a plan for being kept informed, been clear with your
originator that you will not tolerate significant inaccuracies,
and have found someone that you are comfortable with.