In a previous post, Money, Money, Money, I broke down some of the settlement costs that are incurred by borrowers when closing on their homes. But the question is, are all closing costs the same by any lender? The answer is no. For example, if you currently have a mortgage and are interested in refinancing, your current mortgage company could possibly save you closing costs because they already service your loan. They may charge you a nominal fee up to $500, but compared to closing costs at any outside lender, that is a significant savings. The only problem is, your current mortgage company may try to keep you at a higher interest rate than an outside lender could provide. In this scenario, it’s up to you to do your homework and see which is the better way to go. A good rule of thumb is that if you will be staying in your home for three or more years, the interest that you would save would pay for your closing costs from an outside lender.
What about purchasing a home? If you are purchasing a home, the closing, or settlement costs, can be quite expensive. After all, this is probably the biggest purchase you will ever make, so it goes without saying that there are many people and companies involved in procuring your loan. Just because you may only speak with one person does not mean that there are not many behind the scenes working on your behalf. But, are the closing costs fair? In a new study put out by noted economist Susan Woodward, closing costs can vary greatly due to your financial status and even your race. According to this report, consumers pay thousands more than needed in loan charges, title fees and other closing costs by significant and unsupported variations and that minority races may pay even more. You can read her full report here, A Study of Closing Costs for FHA Mortgages. This report studies approximately 7,500 FHA loans that were originated in 2001and were all 30 year fixed rate mortgages. The market was in a period of stability in 2001 unlike the present time. However, interest rates were higher.
She points out that borrowers can be financially and credit identical and buy a home for about the same price, but their closing costs will vary depending upon their ethnicity, education level, geography and race. After these factors were considered, there were still variances in the prices borrowers were charged.
I have previously stated in many posts that you need to be an informed buyer. If you feel that you are being treated unfairly by your lender, seek out another. If you have any questions, ask them. If your lender tries to get around answering questions, then they are probably over charging you. It’s a shame that people are being taken advantage of by this industry, but don’t lump all loan officers into one category. Just do your homework and if your lender doesn’t explain things to you as you go along, get a new one. You never know, it may save you money in the long run.
Kim Shuford
