December 8, 2015 by Leave a comment

keys to house with home ownership documentsIn October, new forms designed by the Consumer Finance Protection Bureau to help borrowers better understand their closing costs went into effect. These are designed to make it easier for you to save by providing binding estimates far enough in advance of closing that you can shop for services yourself.

Officially called Loan Estimate and Closing Disclosure forms, but also known as “TRID” (for TILA-RESPA Integrated Disclosure), the new forms combine elements of two laws, Truth-in-Lending and the Real Estate Settlement Procedures Act. They eliminated duplicate paperwork and replaced it with just two forms on mortgage and closing costs—one that lenders must send borrowers within three days of applying for a mortgage and a second that is due three days before the closing data.

Estimate of all your closing costs

The first form details the kind of loan you’re taking out, including rate, term, monthly payment, fixed or fixed or adjustable rate. It will state whether there’s a prepayment or late payment penalty, whether the rate can be locked, whether you are paying points, and whether you’ll need to take out mortgage insurance. It will include taxes and other hard costs that will not vary.

The Loan Estimate also will include estimates for two kinds of closing services provided by third party vendors—those the lender choses, like the appraiser, and those you select, like title insurance and settlement services. These estimates must be accurate within 10 percent of the final cost, or the lender must make up the difference.

If you think the loan terms and closing costs are too high, this is your chance to shop around. Apply to a few other lenders to see how they compare. Some charge lower rates by making up the different in higher fees. Again, be sure you understand exactly what the estimates say. If rates, terms, payments or, loan types differ significantly, make sure you know why.

How to save: the basics

Once you have chosen a lender, focus your attention on the third party services that you can hire. You can shop for any of the services listed on section C of page 2 of your Loan Estimate form. Even though you will not be liable for paying more than ten percent of the estimates provided by your lender, your chosen lender may or may not have done a good job of finding a cost effective provider.

Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for your own providers, but check with your lender about any not on the list. There may be a reason your lender doesn’t recommend them.

For most borrowers, title insurance and settlement service are the two categories the greatest opportunities to shop and save.

Saving on title insurance

Lenders require you to take out title insurance to protect their interests. When shopping for title insurance, you should decide in advance whether you want coverage for yourself as well (see Do You Really Need Owners’ Title Insurance?). If you’re refinancing and bought ownership coverage when you first bought your home, it will still be intact and you don’t need to worry about buying ownership coverage again.

Title insurance is highly regulated at the state level and your opportunities to save will vary greatly depending upon where you live. In some states, you will find that insurers’ costs vary little one from another. In other states, you might be able to save by choosing a competitively priced product or a from an online title company.

In addition to title, settlement services include preparing all documents, signing, and post-closing review of the loan package. Often the same company will provide title and settlement services in the same package.

Choose your closing service providers and notify your lender so that the third party providers you choose can be included in his final calculation of all closing costs.

scook@reeconadvisors.com'

Steve Cook is managing editor of Real Estate Economy Watch, which was recognized as one of the two best real estate news sites of 2011 by the National Association of Real Estate Editors. Before he co-founded REEW in 2007, he was vice president of public affairs for the National Association of Realtors. In 2006 and 2007, he was named one of the 100 most influential people in real estate.


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