July 21, 2011 - posted by Jenny Pisillo
Yesterday, we wrote about how San Francisco has the 4th highest closing costs in the nation. That is just the icing on the cake that adds to the already high prices we pay for real estate in the Bay Area. For many, closing costs are often that overlooked and misunderstood item that catches many by surprise when the day finally arrives to get the keys and close on the mortgage.
Bankrate's annual survey of closing costs around the country shows that when shopping around for a mortgage, while the interest rate is a leading factor, borrowers should also factor in the closing costs a lender charges.
"Interest rates get a lot of attention, and rightfully so, but it's also important for consumers to compare lender fees when shopping for a loan," said Greg McBride, CFA, senior financial analyst for Bankrate, Inc.
With closing costs that amount to $4,832, on average, in San Francisco - it can pay to dig deeper and ask potential lenders what they estimate the closing costs to be. One way is by looking at the good faith estimates some lenders will provide on their website.
The first item that can vary widely between lenders is their origination fee. This is the costs banks and other mortgage providers will charge a borrower for the upfront work in underwriting and processing of the loan. It covers the manpower needed to complete the due diligence on the loan applicant and all the compliance and regulation that lenders must now follow. But, it is a fee that can vary greatly, and it's worthwhile to ask potential lenders what their origination fee is.
Bankrate's survey shows that if you are getting a $200,000 mortgage in New York, for example, you may be charged anywhere from the $700s to more than $4,000 in origination fees depending on which lender you choose.
After origination fees, title insurance and other third party costs are the other items that can vary. Typically, once a borrower moves forward through the application process with a lender, the lender will usually request an appraisal and get the title insurance process started. Usually, they will select these providers for you. I'm guessing most of you aren't aware - like I wasn't - that the vendors the lender selects aren't the ones you have to go with. Borrowers can choose the companies that will issue the title insurance policy as well as do the appraisal.
A great place for comparing title insurance costs in California is the California Land Title Association's TitleWizard site, where a few inputs will spit out a list of title companies and their policy premiums.
TitleWizard lets you compare title insurance premiums based on zip code and loan amounts.
One consideration when shopping about for title insurance and appraisals is to make sure that your lender can work with them. Lenders often guide borrowers to companies they already have a good working relationship with - but not necessarily the ones with the best rates. But the relationship can be a key factor, especially when all the players have to submit their part of the loan project to get the mortgage closed on time. Can your lender and the other third parties that you selected play well together in the sandbox?
Lastly, don't be shy. It serves all of us well to negotiate so go ahead, wheel and deal a bit and ask for a discount. Wouldn't you rather use that $500 you saved towards a new iPad?
Have you shopped around to lower your closing costs? Any tidbits and advice to share?
Posted By: Jenny Pisillo (Email) | July 21 2011 at 09:30 AM