Author's note: Thursday I did a story about real estate closing costs on "Good Morning America." As I walked off the set at the end, the crew gathered around me and started peppering me with further questions about the topic. I realized I had struck a nerve!
After all, often I can give advice that saves you tens or hundreds of dollars, but this is a chance to save THOUSANDS! So I decided to continue the conversation about closing costs in my weekly column.
Every year, Americans spend $110 billion buying houses. I'm not talking about how much the homes themselves cost. I'm talking about how much the loans cost. American home buyers routinely pay abusive closing costs. There are two kinds: real fees that are inflated and junk fees that are just plain made up. It doesn't have to be that way. If you know what you're doing, you can save thousands of dollars when you go to the settlement table.
Here's the problem: when you apply for a loan, the mortgage company gives you a list of the fees you can expect. It's called a good faith estimate. What a joke! All too often these estimates aren't given "in good faith" at all. You see, there's no law requiring the mortgage company to stick to its good faith estimate. So when you go to closing a month later, often you'll find the fees have risen sharply or new fees have been added. The Department of Housing and Urban Development has been fighting to prevent lenders, brokers and title agents from padding closing costs. But the current law is weak, so courts keep siding with the mortgage industry. Until Congress passes a better law, it's up to you to protect yourself.
Years ago, when I closed on my first home, the fees were a whopping $2,000 more than I had expected -- even though the mortgage company manager knew I was an investigative reporter. I can only imagine how that company treats customers who don't have a title like mine to fling around. Of course, I questioned every single line item, found several junk fees, and got the company to knock several hundred dollars off my closing costs. Let me fill you in on several ways the mortgage industry tries to get you.
Cleo S. wanted to refinance her home. The lender charged her $50 for a so-called "funding fee." That's a euphemism for a simple wire transfer. First of all, wire transfers don't cost that much. Second, getting the money to the borrower is the lender's job and shouldn't cost extra. The lender also charged Cleo $150 for a survey, but when you refinance, normally a survey isn't required. The title company took advantage of Cleo too. It charged her $125 to record her deed with the county. But the county where Cleo lives only charges $25 for that service. The fee was heavily padded -- pure profit for the title company!
There are a couple of proposals that could reform abusive closing costs like these. One idea is for groups of lenders, title agents, surveyors and appraisers to band together and offer package deals. The packages would be guaranteed, so consumers could shop and compare. These package deals are already starting to be a reality. The other possibility is a law requiring lenders to stick to their original good faith estimates, or not stray by more than 10 percent. Even the mortgage industry supports this proposal. That would eliminate the bait-and-switch tactics so common today.