Home buyers can save hundreds of dollars, even thousands, on closing costs with a little time and effort. Closing costs are the fees associated with buying or selling a home, collected on the day you close escrow. For sellers, these are usually limited to real estate commissions and prorated taxes. For buyers, the list is much longer and includes costs where savings can be achieved.
Loan Estimate and Closing Disclosure
Two new closing forms were introduced in late 2015 that make it easier for buyers to manage their closing costs, first to estimate their closing costs in advance and then to disclose in advance they actually will be at closing. Your lender will send you a Loan Estimate three days after you apply for a mortgage that includes the terms and all the costs associated with closing on the loan. These range from appraisal fee to title search. Lenders are allowed to charge up to 10 percent more than the estimates.
Three days before your closing date, your lender will provide a Closing Disclosure, which summarizes all your final closing costs, and compares the estimates that were provided with final costs.
Services you can shop for
On the page of your Loan Estimate titled “Closing Cost Details”, three categories will be listed on the left hand site of the page: origination charges, services you cannot shop for and services you can shop for. Origination charges and services you cannot shop are charges incurred by your lender. If they seem too high to you, your only option is to shop for an alternative lender and compare costs
The “charges that you can shop for” category provides opportunities for you to save with a little effort. If these costs exceed the estimates by more than 10 percent, the lender will provide you credits that will lower your costs. However you might be able to find vendors who will deliver the services for less.
Required or optional? Not all services listed on your estimate may be required where you live, but they might be advisable. Ask you real estate agent to review the list and see if any might be eliminated.
Opportunities to shop. Focus in on the bigger ticket items, including title insurance and settlement services. Review these with your agent and get the names of other good vendors serving your market. Do your research to determine what services you need (lender and owner title insurance? What do you need from a settlement attorney?). Ask for quotes from vendors and select one. Order your services in plenty of time to have them performed before closing. Inform your lender of your decisions. If you decide to use service providers other than those your lender recommended, the 10 percent ceiling no longer applies and you will be responsible for the full cost of the services you order.