Closing Costs
The law says closing costs are all the costs necessary for the loan & the transfer of title from the Seller to the Buyer. This means that Closing Costs are not necessarily just the fees you pay when you sit down at the closing table.
For the most part, since these fees DO NOT originate at the mortgage company level they DO NOT VARY from company to company. They are fixed fees from third parties for performing services such as furnishing tax certificates, transfer/recording fees to the county & state, doc prep fees, title insurance, surveys, appraisals, etc. Some of these fees, like the appraisal, credit reports, etc. are usually paid prior to closing and are credited to you at closing.
HIDDEN COSTS (the unvarnished truth)
People are always worried about Hidden Costs in a real estate transaction and I can’t say that I blame them since Title companies tell us the average buyer gets to closing and is surprised with about $2,000 more in closing costs than they were prepared for. It couldn’t come at a worse time so of course, happenings like this lead to horror stories that are oft-repeated, and soon the $2,000 grows to $4,000 or even $5,000. With stories like this circulating, how could you not be worried about hidden costs?
But how can mistakes like this happen over and over again? You would think agents & Mortgage companies would eventually learn how much these closing costs really are. So the first question we have to ask ourselves is “Are these mistakes?” And the answer is a resounding “NO – they are marketing techniques”. Huh? Let me explain.
I know how much closing costs are, real estate agents generally know how much closing costs really are, and every mortgage company in town knows how much closing costs are. So if they all know the actual figures, why not simply tell borrowers the correct figure? Because in this case, it is legal to fudge!
OK, so even though the law doesn’t require it, if everyone knows the costs I still don’t understand why they wouldn’t disclose them. Wouldn’t it be simpler and wouldn’t they have happier customers? I agree with you and that is what we do, but there is another aspect to this issue.
Since mortgage companies all dip from the same well when it comes to rates (mostly Fannie Mae and Freddie Mac) it means that rates don’t really vary significantly between mortgage companies.
On a given day if 5 different mortgage companies had your loan processed and ready to submit on the same standard, Conforming 30-year fixed rate loan, all companies would likely have the exact same rate! Any subtle rate differences would have more to do with the time of day the loan was locked or whether your situation was fully researched, documented, and completely ready for presentation to the Underwriter than anything else. So the problem for a mortgage company becomes, how do they attract a borrower’s attention and appear unique?
Let’s face it, claiming to have lower closing costs is a good way to get your attention!
Mortgages can be complex and confusing so closing costs are one of the factors potential borrowers understand and focus on. Understating the closing cost figures is an easy way for a mortgage company to entice you to do business with them. As long as this practice generates business, companies will continue to understate. Companies that do this are not doing anything illegal, but they are being less than totally ethical and honest with you. When faced with this situation, the question you must ask yourself is “What else are they being less than totally honest about with me?”
Your only defense is a good education. Like Smokey the Bear says Only YOU can prevent . . . or . . . something like that. OK, Maybe it was Smokey & the Bandit.
There really is no downside to a mortgage company understating costs. Once the Buyer is at the closing table the mortgage companies know you won’t let a little thing like $2,000 stand between you and your new home. After all, you’ve already sold your old house/given notice at the apartment, moved your kids to a new school & told all your friends about your new house – THEY KNOW YOU WILL CLOSE!
Let me explain closing costs so that you will know what to look for. If you understand closing costs you will be able to spot the “understaters” on the phone. Listen carefully and you will hear statements like OUR closing costs are only . . . when in fact YOUR total out-of-pocket costs are much higher. So ask people point blank “What will MY TOTAL out of pocket costs be?”
costs do fluctuate slightly
And yes, costs do fluctuate slightly, but only slightly. For example, a special loan program might require a review appraisal. An appraisal & survey on 10 acres in the country costs more than on a city lot – but you will only find a $50 variance here and $25 there, not $2,000! You will also see that costs come from 3 different sources – make sure any quotes you get come from all 3 sources.
We’ll be happy to tell you the total of ALL your closing costs, We don’t control them and we don’t get a dime of them. Any closing costs that come from our company are Recovery Costs, which means they are either for bills we have already paid or will be getting billed for. Plus, I hate being yelled at when I’m wrong so it is easier for me to be honest.
Closing cost disclosures can be a good way to check the ethics of any company you talk to. If they don’t disclose ALL costs, you have to wonder, what else will they conveniently forget to tell me?
If you want to check up on a closing cost estimate, talk to a Title company. They’ll tell you the truth.