Today, to Andrea’s question:
Hi Rona, When it comes to hiring an attorney for the buyer, how are buyers protecting themselves from sticker shock at closing? It seems the most expensive items on the closing settlement sheet are usually title and title insurance services, and closing -- which are provided by an attorney. If that attorney is selected from the bank's list of service providers, then the buyer is protected by the estimates on the GFE. However, if I've understood correctly, these estimates do not apply if the buyer chooses to use her own attorney for the title work and the closing. Many buyers are advised to use their own attorneys for the closing because "it saves them money" (i.e., by way of a discount on the P & S work). Has this really been the case in practice? Do buyers-choice attorneys typically stay within the GFE numbers quoted by the bank, which I understand to be over-disclosed anyway? Or do they get a discount on P & S only to see higher rates for the other work? What can a buyer do to avoid/minimize sticker shock at closing?
What are those “required services that you may shop for?”
There aren’t any in Massachusetts. In other states there are title companies and other entities that we don’t have here in Massachusetts.
How can a consumer shop for title services and title insurance?
Some attorneys will discount their fee for the Purchase and Sales Agreement in order to capture the closing business for the loan. Andrea is suspicious that the “discount” will inflate the closing attorney fee.
Actually, that fee is already a good deal for the attorney; there is no need to further pad the bill. So, it is worth it to many attorneys to give the buyer a break on the Purchase and Sales Agreement services in order to get the closing business. If the GFE rate for the closing attorney is set at some fee -- say $400 or $500 or $600 -- the closing attorney is bound to that fee if he or she agrees to close the loan. There is no negotiation about this with the lenders I spoke to.
Sometimes the buyer’s attorney’s fee for the Purchase and Sales Agreement or condo document review is put on the HUD-1 Settlement Statement and sometimes it is not. If Andrea’s bill for the non-closing work doesn’t go up from what she negotiated with the attorney, then she is not paying more than she bargained for. However, seeing the Purchase and Sale preparation bill on the HUD can be confusing.
Rates for title insurance, across companies, is pretty even. Many lenders in Massachusetts use First American.
Here is a calculator.
An example: I chose “title rates” at the top, my location and “sale with mortgage” from the drop-down menu. I put in for a $500,000 purchase with $400,000 mortgage. The results were $1075 for the lender (mandatory) policy and $1100 for the optional owner’s policy.
There are regular and “enhances policies. Here’s a page with the comparison between them. This should be discussed with an attorney.
Advice to Andrea:
My advice is to make sure you get the Good Faith Estimate when you apply for your loan. Check the figures and ask questions. The good thing about the GFE is that is has forced lenders to give accurate figures for Registry fees and lender services (like appraisals and flood certifications.) The GFE holds the lender’s feet to the fire to be accurate now.
The figures on the GFE show up again on your HUD-1, so you can check them. They need to match within the tolerances I listed yesterday.
I hear from lenders that estimates on the GFE are coming in within the tolerance and frequently almost on the dollar. Lenders have an incentive to keep the fees on the GFE low, so they will be competitive “selling” you the loan. So, in order to stay within the tolerance, lenders are getting better at knowing what Registry fees really are and what they will pay for flood certifications, appraisals and other required services. This alone has taken a lot of the surprises out of seeing the final HUD-1 the day before closing.
What’s your experience with the GFE? What tricks or traps have you seen that Andrea should know about?
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