Good Faith Estimates Part II, Title Charges...What are They?
Back on the topic of Good Faith Estimates...I want to take a look at the section labeled Title Charges. I am always trying to save our Buyers money, and some Mortgage un-professionals are not working to support this cause. I find most mortgage originators to be hard-working and highly ethical, but there are those that we must guard against to better serve our Buyers.
As discussed previously, Title Charges are not lender specific and predominantly a function of 2 things:
- The purchase price of your house (Title Insurance policies are based on a % of the purchase price)
- Closing Fees charged by the Attorney or Title Company you chose for your closing.
Most Importantly...understand that Good Lenders will represent this fee accurately on your Good Faith Estimate, while Bad Lenders will not.
Why does that matter? Simple...because a low estimate of your Title Charges will make your Closing Costs appear lower and make it appear that you are getting a better deal when in fact you are not. The "Bad Lender" can get away with this because at closing the lender will just explain that it is not their fee, rather it is the attorney or title company's fee.
Before we launch into a breakdown of the different charges you can expect in your closing costs total let's answer the following question:
What is Title Insurance and Why do I need it?
Here is an excerpt from Wikipedia which provides a pretty good explanation.
http://en.wikipedia.org/wiki/Title_insurance
Title insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries but it is principally a product developed and sold in the United States. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
You can also visit the US Housing and Urban Development website for a more detail breakdown at http://www.hud.gov/offices/hsg/sfh/res/sc2sectf.cfm.
The "Bottom Line" is that Title Insurance is Required in the State of Florida and it will prevent any future claims against your home from previous owners. Policies are offered through the Real Estate Attorney or Title Company that will handle your closing. Refer to your Realtor and Lender for reputable closing authorities.
Here is a basic example of what to expect on your Good Faith Estimate. Title Charges are very straightforward and will typically not vary much if calculated properly.
- Closing or Escrow Fee: The closing fee is charged directly by the Real Estate Attorney or Title Company where your closing is conducted. Period. It is a flat fee. You will find that Realtors and Lenders prefer to work with specific title companies but ultimately it is your decision as the Buyer as to where the loan will close.
- Document Prep, Notary, etc: This group of fees also charged by the closing agent. These are typically grouped into the above ‘Closing Fee' and not charged in addition to.
- Title Insurance: This is the actual cost of your Title Insurance Policy. It is a % of the Purchase Price of your home and paid to the Insurance Carrier through the closing agent.
- Exam, Binders, Endorsements: Prior to a title policy being issued on a property an abstract search is conducted on the deed to verify that no previous owner still has a legal claim of ownership. After this exam process is concluded "Clear Title' is issued. These fees are typical of that process.
As stated earlier Title Charges are fairly standard for each transaction but can be grossly underestimated on a Good Faith Estimate by competing lenders. Make sure you are taking care of your Buyer!
Don't be Fooled. If it looks to good to be true, then it's probably a bad estimate. Have your Realtor or Attorney review the charges to ensure accuracy.
This concludes the second entry on Good Faith Estimates. Next week I will break down the Escrow charges and how your taxes and insurance will influence your mortgage payment and closing costs.
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