Questions on closing costs - How can I lower them?

8 Replies

This is the estimate I am planning on using for financing. This is one aspect of things I have NO knowledge of. I don't know what things are required, which are optional, etc. A couple things stand out to me:

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1.) $100 for a credit report?! That seems outrageous.

2.) Up Front Mortgage Insurance Premium - What is this that costs over $6000?

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3.) Why can I shop for these things but not other things?

4.) HOW do I shop for these things?

5.) If I can lower these costs, is it enough to devote the time to?

6.) Is a survey really required? (I suppose they have owned the property since 1984 so probably not a bad idea.) But $700?! That seems like a LOT of money for what I can imagine isn't a full day of work for a person. 

7.) Title - Lender's Title Insurance - $4500 - What is this? Why is it so much money?

Prepaids - Most of these make sense but:

8.) Homeowner's Insurance premium (12 Month) - $6000 and Homeowner's Insurance (3 Month) - $1500: Am I paying insurance twice for those 3 months?

9.) Why am I prepaying interest? Why 15 days? Another estimate only has me paying 4 days - why is this?

Finally

10.) Seller's Credits - Where is this being allocated? Is this just something I should know - namely, what is usually paid by the buyer and what is paid by the seller?

I realize this is a ton of questions. This is a process that, even when I study, makes NO sense to me. I see some big numbers though, and I would be curious how I can lower them. I don't mind spending hours if we are lowering costs by hundreds of dollars (I don't make quite THAT much an hour!) and I would love to learn this stuff if I plan on getting serious (I do).

I appreciate any answers to these questions, or any directions to posts/books I can read up on to understand all this. I have to start the application process by the end of the week, so I have a couple days if need be. Thanks in advance!

@Daniel Winsor I’ve been a Loan Officer for close to 10 years now so I can try and help... 1 - Seems a little high but not that crazy, we charge $50. Chances are they are passing along the full cost of the company they use to run the reports. 2 - You must be using an FHA Loan? This type of loan requires an Upfront Fee of 1.75% of the Purchase Price, this gets rolled into the loan amount. I’d consider it the cost of doing business as this loan allows for a lot of things that other loans do not and this is the cost for that. 3 - It’s as simple as there are some parts of the process that the lender will require to use certain vendors, these things include credit report and appraisal. There are some they allow you to choose, survey & title charges, etc. They designate between the two because on the ones they require you to use there can be less varIance on the fee that is quoted vs what the final cost is. On the ones you choose the lender is not required to be exact on those quoted fees as they do not know who you will be using at that time. 4 - Id ask your Realtor for recommendations for Title & Survey and then relay that to your lender. The thing is there isn’t probably that much savings to be gained here as these markets are so competitive that the charges are all very close from one company to another. 5 - I’m not sure that it is. You may be able to save a few hundred dollars but I’d personally be surprised if it was more than that. 6 - Most Lenders do not require a survey as a survey affidavit will do just fine for title insurance purposes. You may want to ask your lender. Whether or not you should get one is a different story, they do identify a lot of issues that would otherwise go unnoticed. 7 - $4,500 for Title Insurance does seem very very high. You’re Upfront Mortgage Insurance indicates a purchase price in the $300ks so title insurance in that amount would not make any sense. 8 - That’s just a ball park figure the loan officer is estimating for now, how they determined that number is anyone’s guess. You will need to speak to an agent and get a quote yourself, whatever you are quoted will replace that figure. You are required to pay the annual premium upfront at closing, this is represented by the $6000 and the $1500 is an estimate for 3 months worth of payments that will be put into escrow for future payments. Those estimates are accurate assuming the $6000 is a reasonable estimate to begin with. 9 - You pay interest from the day of the month you close thru the end of the month. This is normal, 15 days may be an estimate for now but it will be determined based on the day of the month you close. This is normal. 10 - Did you negotiate Seller Paid Closing Costs? If you are receiving anything from the seller it would just be applied to the over all closing costs. For example, if you have 10000 in closing costs and 2000 in seller paid closing costs then you’d effectively be only paying 8000 of those total closing costs. I don’t have any posts, books, etc that I can point you to but I can tell you I deal with this stuff everyday so if you have any additional questions please feel free to reply. Good luck and I hope this feedback helps, even if it’s only a little.
@Daniel Winsor I should say that I am only now seeing the picture of the LE you uploaded. It doesn’t change my responses, the things I said are high do seem high. Also, apologize for he formatting. Not how it looked when I typed it up. Lol.

@Randy Forcier

Wow, great information. Thank you! I've spent the last 30 minutes searching for stuff online. 

2.) Using VA - understood. I'm aware of funding/origination fees so this makes sense.

6.) I doubt a survey has been done since the house was purchased, so it's probably a good idea. In Key West, they used to have easements all over the place, but this has been going away so the property line might be moved since those changes. Still, $700?! Ugh. I found a list of them in the area (7 in Key West! Holy cripes!) and I will call them just to get an idea what this costs. I need to understand how long this process takes, because I need to be able to justify this in my head...

7.) Been doing most of the searching on this. Agreed upon price is $550k (No PMI on VA baby!). I have seen a couple varying numbers from some different sites, but I feel like I can knock this down by almost $1000 at least. That's worth some of my time. It seems that, in Florida, close to 1% is about right, so maybe this won't go down much.

That said, a lot of things in the RE market don't make sense to me. Title insurance for example. It says that the down payment and credit score of the buyer have an impact on the price among other things like location, history of the property, and overall price; from what I've been reading, Title Insurance is to protect the lender in the event there was a mistake in the past and someone else has a claim to the property... I don't understand why my credit score has ANYTHING to do with that or even the downpayment I paid. Again, one of those things I just feel like I need to understand at a fundamental level to feel ok with it, but probably just have to hit the "I believe" button.

8.) I understand your explanation, but I don't understand why, if I'm paying a year's premium up front, I would ALSO have to pay 3 months up front. Shouldn't the year's premium up front cover the next 3 months too, and then the next 9 to boot? I must be missing something.

9.) Gotcha. Thanks for the explanation.

10.) We didn't talk any specific numberes. There was a bunch of stuff listed in the purchase contract. Another one of those things I guess it just takes time/experience to become familiar with. I'm trusting my agent to be backing me up with whatever is standard.

I realize some of these are estimates and when I purchased my first home, I got money back from overcharges in the process, so I'm hoping that is a pretty common occurrence. Again, thank you for all the information! It was really helpful.

Follow up questions:

1.) If I shop around and find some lower prices, do I just tell the lender and have that updated on my actual loan documentation? 

2.) Does it need to go in the purchase agreement - I find it strange that he said it's expected to see hard numbers for how much I'm putting down and how much I'm financing (another one of those - why does it matter to the seller type things)?

3.) One of the websites I was reading about Title Insurance compared BoA, Well's Fargo, and Chase prices. Do they sell Title Insurnace? Is it like anything involving banks - some are more reputable/bigger/etc.? I don't want to get some Title Insurance bargain rate only to have the bank go under 20 years from now and leave me hanging.

Again, thank you for the prompt and expansive response. I feel much more equipped moving forward than I did an hour ago.

@Daniel Winsor If you're able to find cheaper prices you would want to let your Lender know asap so they could plan accordingly.  I do think your biggest area for savings will be with the Title Insurance, as @Tom Gimer said.  That is typically provided by the Title Company/Attorney that you use on the transaction not the big banks that you reference in your 3rd follow up questions.

If you were to shop for that I would reach out to a number of local Title Companies/Attorneys to get quotes then once you find the one you like let your Lender know so they can initiate the change quickly before the Title Company/Attorney that was probably assigned upfront gets too far along in their work.  One other thing to consider is that some Lenders maintain an approved list of Title Companies/Attorneys that you'll want to make sure you're operating off of as you do that search.

I know there are a lot of moving parts, hope that is a little helpful.  Good luck!

Originally posted by @Daniel Winsor :

@Randy Forcier

Wow, great information. Thank you! I've spent the last 30 minutes searching for stuff online. 

2.) Using VA - understood. I'm aware of funding/origination fees so this makes sense.

6.) I doubt a survey has been done since the house was purchased, so it's probably a good idea. In Key West, they used to have easements all over the place, but this has been going away so the property line might be moved since those changes. Still, $700?! Ugh. I found a list of them in the area (7 in Key West! Holy cripes!) and I will call them just to get an idea what this costs. I need to understand how long this process takes, because I need to be able to justify this in my head...

7.) Been doing most of the searching on this. Agreed upon price is $550k (No PMI on VA baby!). I have seen a couple varying numbers from some different sites, but I feel like I can knock this down by almost $1000 at least. That's worth some of my time. It seems that, in Florida, close to 1% is about right, so maybe this won't go down much.

That said, a lot of things in the RE market don't make sense to me. Title insurance for example. It says that the down payment and credit score of the buyer have an impact on the price among other things like location, history of the property, and overall price; from what I've been reading, Title Insurance is to protect the lender in the event there was a mistake in the past and someone else has a claim to the property... I don't understand why my credit score has ANYTHING to do with that or even the downpayment I paid. Again, one of those things I just feel like I need to understand at a fundamental level to feel ok with it, but probably just have to hit the "I believe" button.

8.) I understand your explanation, but I don't understand why, if I'm paying a year's premium up front, I would ALSO have to pay 3 months up front. Shouldn't the year's premium up front cover the next 3 months too, and then the next 9 to boot? I must be missing something.

9.) Gotcha. Thanks for the explanation.

10.) We didn't talk any specific numberes. There was a bunch of stuff listed in the purchase contract. Another one of those things I guess it just takes time/experience to become familiar with. I'm trusting my agent to be backing me up with whatever is standard.

I realize some of these are estimates and when I purchased my first home, I got money back from overcharges in the process, so I'm hoping that is a pretty common occurrence. Again, thank you for all the information! It was really helpful.

Follow up questions:

1.) If I shop around and find some lower prices, do I just tell the lender and have that updated on my actual loan documentation? 

2.) Does it need to go in the purchase agreement - I find it strange that he said it's expected to see hard numbers for how much I'm putting down and how much I'm financing (another one of those - why does it matter to the seller type things)?

3.) One of the websites I was reading about Title Insurance compared BoA, Well's Fargo, and Chase prices. Do they sell Title Insurnace? Is it like anything involving banks - some are more reputable/bigger/etc.? I don't want to get some Title Insurance bargain rate only to have the bank go under 20 years from now and leave me hanging.

Again, thank you for the prompt and expansive response. I feel much more equipped moving forward than I did an hour ago.

You are paying for the full year HOI policy up front. That gets paid directly to the insurer. The additional 3 months will be collected at settlement and put into an escrow account maintained by the lender. A portion of each of your monthly mortgage payments will be 1/12 of the next year's estimated HOI policy and RE taxes. The lender "pads" the escrow account at the outset so there are sufficient funds in there when taxes and insurance increase. Odds are your payment will eventually increase but this practice often prevents that from occurring right away.

FL is heavily regulated and you will not end up paying the amount estimated for title insurance regardless of which title company you close with.

@Randy Forcier @Tom Gimer

Gentlemen, thank you. I sent a couple of the lingering questions to my proposed lender and got the same info back. Sounds like there isn't much cost cutting to be done and everyone in question has been doing right by me (not that I was insinuating otherwise really). Even so, I feel much more knowledgeable about the process at the least; so I appreciate all the valuable information.