Remember, closing expenses fall into two categories. The first is purchase closing expenses, which are the expenses you would have even if you paid cash for the property. The second is loan closing expenses, which are the expenses directly connected to your loan. Deciding who will pay purchase closing expenses is entirely a matter of negotiation between the seller and the buyer. There is no law or rule regarding who has to pay what.
Many real estate agents will advise you, "The buyer pays the deed recording fee, because the seller does not care if you ever record it or not. It makes no difference to him or her." This might be true, but it does not mean you are prevented from negotiating the seller's agreement that he or she will pay the recording fees. A motivated seller afraid of losing a sale might agree to pay all purchase closing expenses. A seller in a hot market might not agree to pay any of them. Normally, the borrower pays all loan closing expenses, but that is also a matter of negotiation between buyer and seller.
Most purchase closing expenses are fairly cut and dried with no room for negotiation or shopping. The title insurance is what it is. Recording fees are set by law. Document preparation fees are pretty standardized. Waiting until the last minute to clear up problems can rack up a lot of expenses in overnight delivery and courier charges and longdistance calls. Not only is it stressful, it is also expensive. Try to avoid it.Wire transfer fees generally add a small cost, but I do not recommend mailing certified checks in order to avoid the wire transfer fee.
First, overnight delivery fees are about the same as wire transfer fees. Second, you do not really want to drop that check in the mail with just a regular stamp, do you? Third, even cashier's checks can have holds placed on them because of widespread fraud and the little known ability to stop payment on a cashier's check.Wired funds are instant. The best control is to negotiate that the other party pays the closing expenses. A motivated seller will agree to pay all of them.
Ask each potential lender for an itemized list of the types of loan closing expenses you can expect, and an estimate of the amount. Typical sources of unexpectedly large fees include the following.
Attorney's fees. Unless your lender is willing to commit to a notto- exceed number, called a cap, these can stack up in a hurry. If a lawyer charges US Dollars 300 per hour, with a quarter-hour minimum time entry, then three rounds of telephone tag ending in a simple conversation with the loan officer consisting of, "Have you received proof of insurance yet?" can add up to US Dollars 525 in fees! Every time you ask a question about the documents or requirements, every time the lawyer talks to anyone or has to review the file, the meter is running.
Title insurance. There is the standard, simple title insurance policy, and then there are additional things called endorsements that provide extra coverage for the lender. Each endorsement costs you more money. Lenders all have different requirements regarding which endorsements they want. They might be willing to waive some of them.
Surveys. Again, all lenders have different amounts of information they want to see on a survey. The more information the surveyor has to include, the more expensive the survey will be. Some lenders are happy with a drawing that shows property lines and a statement that all buildings are inside the property lines. Others want every single structure, all fences, driveways, sidewalks, storm sewers, and power line easements marked on the drawing. You can control this expense in three ways: (1) obtain a cap, just like with legal fees; (2) find out what the specific survey requirements are, and whether a lender with a larger interest rate might end up being cheaper because its closing expenses are cheaper; and, (3) see if the seller already has a survey that can be updated fairly cheaply.
Phase I Environmental Report. This is an engineer's report to the lender that, based on the history of the property and interviews with knowledgeable people, there is no evidence that the property might contain hazardous waste. There is a wide range of fees among engineers for these services, so you should ask for the ability to choose the cheapest engineer who is on the lender's approved list.
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Note: This article was sent to us by: Martin C. Doyle at 07042010
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