Comments on: 5 Big Questions For New Home Buyers #5: What Are All These Closing Costs?

By: Fred

Fred — Sun, 11 Jan 2009 23:02:31 +0000

As CIO of title insurance company Entitle Direct, I’d like to expand on the important points raised in the 2 prior comments regarding title insurance. Although many consumers don’t realize it, they have the right to select their own title insurance company even if their attorney, realtor or lender offers their own title insurance company recommendations. One reason to shop around is that title insurance referrals often reward the referrer with a commission that may exceed 70% of the policy premium. There is also a consumer perception that title insurance rates are set by their state, but there are only 3 states where rates are mandated by the state: New Mexico, Texas, and Florida (Iowa does not permit title insurance, but instead offers a state title guarantee program). Title insurance in the majority of remaining states is dominated by rating bureaus, which are quasi-private entities formed by title insurance companies; the rating bureau member companies all agree to charge the same rates, which are approved by the state. Given that rates are therefore fixed for the rating bureau member companies, they may tend to compete in terms of incentivizing and obtaining referrals.

Independent title insurance companies such as Entitle Direct that are not members of rating bureaus are free to submit their own rates in a state for approval, and this can form the basis for rate competition that a smart shopper can benefit from. As an example, Entitle Direct seeks to sell title insurance directly to consumers in over 28 states at a savings of 35% or more via http://www.entitledirect.com.

When buying title insurance, there are 2 types of policies as mentioned in the previous comment. A lender’s policy protects the interests of the loan provider if a loan is being provided as part of a re-finance or purchase transaction. An owner’s policy protects the interest of the owner, but also comes in 2 varieties: basic and enhanced. A basic policy protects the owner from title defects up to the date of policy issuance; however, title defects can arise after that date that the owner would be exposed to without an enhanced policy. Enhanced policies protect from risks such as mechanic liens, zoning and sub-division issues, as well as post-closing forgeries. It is common for both a lender and owner policy to be purchased as part of a transaction (which by the way should qualify for what is called a simultaneous discount), so the consumer should understand whether basic or enhanced owner coverage is being provided by their title insurance company.

By: Cory

Cory — Fri, 19 Jan 2007 20:31:38 +0000

One thing to take note of with title insurance: frequently, the title insurance that protects the lender and the title insurance that protects the buyer are separate products. You’ll need to take care that you, the buyer, are covered in the event of title fraud. Title insurance should be available to you, but it may not be put on your closing statement by default.

By: Josh

Josh — Fri, 19 Jan 2007 18:58:46 +0000

Thanks! Awesome post. I just forwarded this to my sister-in-law who is closing in the next month or so. I also included some advice, which I want to share with you:

SHOP AROUND!

1. Homeowner’s and Title insurance costs can be very different between providers. Don’t let your agent, lawyer, or broker select this for you. They don’t really care which is cheapest, and they may be getting a kickback (even if it was just coffee and a pen, it still doesn’t help them choose based on your best interests.)

2. Notary Fees. We closed on our most recent home in November from 1500 miles away, so we chose our notary. The library let us notarize the dozens of documents for $4 total. How much is your lawyer’s office going to charge you for that service? Have you asked if that price is negotiable?

3. Inspectors don’t all have the same rates. They also don’t all have the same level of skill. This person is going to give you advice for the single biggest investment in your portfolio–choose wisely.

By: Chris

Chris — Fri, 19 Jan 2007 18:45:19 +0000

Ahh, the appreciation is the part of it I forgot about. At the point it’s worth more, you’re getting a return on borrowed money, which is nice. That can cut the breakeven point down to something more reasonable. I’m assuming that a more expensive loan would have a longer break even point, due to paying more interest and the points being higher and such.

By: Hustlermoneyblog

Hustlermoneyblog — Fri, 19 Jan 2007 18:11:06 +0000

it would be a good idea to write on a post about negotiating these fees.

By: Shane

Shane — Fri, 19 Jan 2007 17:53:49 +0000

Chris, give or take, based on no money down, zero appreciation of value, and a loan of 100k at 7% you’re looking at at about 5 to 6 years.

By: Chris

Chris — Fri, 19 Jan 2007 17:46:34 +0000

Whew, what is the break even point on a house? (I k now thats a very hard question to answer). With all these fees before you ever see any equity at all. Beyond that, you mostly pay interest for a long time on your payments.

I wonder how long you need to keep your house to come out ahead on all these fees with equity.

By: Shane

Shane — Fri, 19 Jan 2007 17:36:59 +0000

Good stuff, I wish I had something like this when I was looking. The cost of purchasing was so much more than I expected. You could even do a “cost to move in” section to cover most of the expenses and purchases you need to make that living at home or an apartment didn’t need.

Plan on another $500 to $1000 to cover such things as cleaning supplies, trash cans, caulk, tools. Etc.

By: Phil

Phil — Fri, 19 Jan 2007 17:21:08 +0000

According to this story on MarketWatch, it’s generally not a good idea to pay points on a mortgage:

http://www.marketwatch.com/news/story/paying-mortgage-points-rarely-pays/story.aspx?guid=%7B425B62C6%2D5C3F%2D416C%2DAE1E%2D8577DFCE8800%7D&dist=