WHAT IS A "CLOSING COST"??
Lenn Harley, one of the top bloggers on Active Rain posted this blog about closing costs and HUD Statements. When I first got in to real estate almost 5 years ago, I didn't know what a HUD was. We got one when my husband and I closed on our house in 2003. But like Lenn says, our eyes glazed over and we just nodded.
I think some time studying closing costs and HUD Statements in real estate classes would be very beneficial. I know it would have helped me. There are too many things Realtors have to learn on the job after they have gotten their license.
WHAT IS A "CLOSING COST"?
Inspired by George Souto's excellent article wherein George refers to the ubiquitous ads by mortgage companies touting "No Closing Costs".
George's article took me back to the days when I learned the difference between a "closing cost" and all the other numerous items/charges on a HUD-1. Loan officers often made presentations to our "Tuesday morning meetings". Remember them?? I asked about an item on a closing sheet and she, the loan officer, said,
"That's not a 'closing cost'."
WHAT???
Well, I thought I'd better get busy and learn the lingo. So, even though it's on the Settlement Statement, it may not be a "closing cost".
Just what is a "closing cost"??? To a consumer, it's any money out of pocket before or at settlement. That's easy.
To the mortgage companies advertising "No Closing Costs Loans" or "We even pay your closing costs", that refers ONLY to items charged in the #800 section of the HUD-1 Settlement Statement. It makes sense because the only charges that are in the lender's control are "lender fees". They can't eliminate pre-paid taxes, recording or transfer fees, title services, commissions, etc.
What does it NOT include?? Pre-paids, title services, government recording and transfer taxes title insurance, etc., etc., etc.
We hear the same thing from Title companies or attorneys. "We don't charge a closing meeting fee" (about $300 in my area). What they are not saying is that their income is commission on the title insurance.
When loan officers refer to "closing costs", don't think for one minute that it is all inclusive of fees and taxes paid at settlement. I know from experience that when the title officer/attorney is reviewing the HUD-1 with a home buyer, the buyer's eyes, and usually their agent's eyes simply GLAZE OVER and they just knod their head up and down. The seller looks at the "NET TO SELLER" and if it's in the ball park, they're fine too.
It would behoove buyer's agents to learn to read the HUD-1. Over the years, I've found numerous mistakes that could have cost my buyers $Thousands. Some items wrongly charged to buyers have been:
*Lender fees in a VA contract charged to the buyer.
*Transfer fees not split in new home purchase in MD where the builder didn't want to pay.
*A HUD-1 in a VA purchase that was so convoluted no one could understand it. The numbers didn't add up and the title attorney would have benefitted by about $1,800. I made him correct the HUD-1 3 times until he got it right.
*Title officer wanted to charge an extra month interest on an FHA closing on the 26th of the month.There have been many more.
HA!! Want to make it really interesting? Take a look at the Truth In Lending Statement. How is the APR computed?? That's not even itemized. Some disclosure!!
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
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