PURCHASER'S CLOSING COSTS - PART THREE

BANK CLOSING COSTS

While the central theme of our discussion of title charges was that they are NOT variable, the opposite is true for bank closing costs. They are quite variable and the amount that you will pay depends greatly on which institution or mortgage broker that you apply to. There are certain fixed charges that you will not change, ie. appraisal fee, credit check, escrows for taxes and insurance, bank attorney fee and short term interest, which is interest from the date of the closing to the end of that month. The rest of the charges are substantially at the discretion of the mortgage broker, mortgage company or financial institution.

Thus, your mortgage broker may ask you to pay an application fee and it is within his discretion to ask for the same. Of course, it is also within his discretion to waive such fee and if you go to another mortgage broker he may not charge it to you or charge you a much higher application fee. As discussed above, this is absolutely not true for title companies. They have no discretion about whether or not to charge you the New York State mortgage tax and how much to charge you. Also, it doesn't matter if you go to title company A or title company B, they will both charge you the mortgage tax and charge you exactly the same amount.

One parenthetical note about application fees. I have also found them to be rather distasteful. Indeed, why should you pay someone for giving them an opportunity to possibly have your business?

In terms of how much typical bank closing costs are, the range is approximately 1.5% of your mortgage amount. That figure is without payment of any points, and a discussion of points follows below. Anything lower than 1.5% is low, and usually what you can expect if you apply to lenders like HSBC, Wells Fargo, JP Morgan Chase, WAMU and Countrywide. Anything more than 1.5% is on the higher side.

The decision whether or not to pay points is a personal one, but one that should be decided after a full consideration of the matter. A point is defined as one percent of your loan and payment of points will naturally result in your bank closing costs will be higher. A quick example of one point is on a loan of $400,000.00, one point would equal $4,000.00.

The rationale for the point is that it serves to lower your interest rate, typically by one quarter percent (0.25%). However, this logic seems quite fractured in light of the fact that the benefit you are paying for is something that you won't ever fully enjoy. That is, if your goal is to lower your monthly payment over the course of the life of the loan, which is 360 months for a 30 year loan, you can accomplish it by paying extra money up front. Again for a loan of $400,000.00, you are going to pay $4,000 at the closing to lower your payment by approximately $83.33 per month. However, the great likelihood is that you won't have the loan for the full 30 years and instead will either sell or refinance the house beforehand.

So what ends up happening is that while you are paying 100% of the cost upfront, the $4,000.00, for a benefit spread over 360 months, you will only enjoy it for a fraction of that time. Thus you end up paying the $4,000.00 to save only a few hundred or thousand dollars as you sell or refi the house before the entire 30 years. If you do a refinance, you may then pay additional points in connection with that loan and potentially waste even more money.

Should you have any questions, do not hesitate to contact us at (718) 803-4113 or by email at SKAFAX@YAHOO.COM.

SUNIL K. AGARWAL, ESQ.

NATASHA S. AGARWAL, ESQ.

Please note that your actual closing costs may vary
depending on the nature of the transaction
and the terms of the contract of sale

PURCHASER'S CLOSING COSTS - PART TWO

TITLE CHARGES

(The following discussion applies for 1-4 family homes in the five boroughs of NYC)

The most important thing to remember about title charges are that they are for the most part NOT variable. That is, no matter which title company you, or more correctly your attorney, choose, the charges will almost be the same. The reason for this is that the highest charges on the bill are all regulated by the State of New York. No matter what title company you choose, they must all charge exactly the same thing because what a title company can charge for such items is mandated by the State of New York. The regulated items that I am referring to are the title insurance for both the purchaser and their mortgagee and the mortgage tax. All three of these charges are based solely on purchase price of the house and/or the amount of the mortgage. The title company has absolutely no discretion on how much they can charge for such items.

The items that are variable on a title bill are de minimis and of little significance. They will not substantially alter the total amount that you pay. An example of such a charge is how much a title company charges for a bankruptcy search. One company may charge $10 per name while another charges $15 per name. This minor difference will obviously not a major impact on your total closing costs and should not affect your decision of whether or not to buy.

There is one additional thing to be aware of about title charges and that relates to what you will be told by various people, ie. mortgage brokers, real estate brokers and others who are not familiar with title bills, about how much your title bill will be. As a general rule, they are either misinformed, ignorant or incomplete when they discuss what your title charges will be. Do not listen to them and instead rely on an experienced attorney.

The mortgage broker must provide you a document known as a Good Faith Estimate ("GFE") which purports to detail all of your estimated closing costs for the transaction. Unfortunately, often times the GFE is incorrect in its recitation of a purchaser's estimated title charges. This can be the product of ignorance on the part of the mortgage professional or it can be intentional deceit in order for such individual to compete with his competition who also misstate title charges. The trick that many mortgage professionals engage in is to understate title charges so as to understate the total closing costs. They will then further mislead the purchaser by blaming the attorney and/or the title company and claim that they are charging an exorbitant amount.

One final note about a GFE that you receive from your mortgage broker. The purpose of the GFE is to be able to help a home buyer compare various mortgage choices. When reviewing a GFE, you should completely ignore the title charges listed there as they are probably incorrect and completely beyond the control of the mortgage broker. Thus, no matter which mortgage broker you choose, he will not be able to affect how much you pay in title charges. So in making your decision as to which mortgage broker to choose, it is absolutely irrelevant what your mortgage charges will be.

I cannot tell you how frustrating it is to deal with an angry client who pulls out a patently incorrect and misleading GFE in the middle of a closing to argue what his title charges should be instead of what is contained in his title bill. What then makes it doubly frustrating is the fact that he will argue about fixed charges that the title company has no discretion about while not arguing about the mortgage broker charges that are usually much higher, which aren't fixed and over which the mortgage broker has great discretion.

Finally, it is remarkably easy enough to estimate what your title charges will be for most transactions. If you are purchasing a 1 to 4 family house in the five boroughs of NYC, the price of which is less than one million dollars and you are not paying more than fifty (50%) percent down, then your title charges will be approximately a little less than three (3%) of the total mortgage amount. For example, if you are buying a 2 family house for $800,000.00 and you are obtaining a first mortgage of $640,000.00 and a second mortgage of $80,000.00 for a total mortgage amount of $720,000.00 then your estimated title charges should be a little less than $21,600. For further examples, consult the following chart which lists actual title bills from various transactions:

PURCHASE MORTGAGE TITLE
PRICE AMOUNT BILL
$950,000.00 $720,000.00 $19,949.07
$910,000.00 $819,000.00 $22,601.20
$818,850.00 $736,965.00. $20,367.85
$775,000.00 $620,000.00 $13,436.89
$715,000.00 $643,450.00 $16,2991.45
$650,000.00 $552,500.00 $15,680.63
$627,500.00 $499,000.00 $14,848.60
$600,000.00 $537,000.00 $15,319.02
$600,000.00 $480,000.00 $12,986.00
$565,000.00 $452,000.00 $12,186.28
$485,000.00 $388,000.00 $ 9,909.54
$437,000.00 $415,150.00 $11,300.80
$415,000.00 $373,500.00 $10,376.00
$375,000.00 $338,000.00 $ 9,548.25
$205,000.00 $164,000.00 $ 5,381.00
$185,000.00 $166,500.00 $ 5,404.00

From the above list, it is clear both that 3% is a good estimate and that it usually produces a figure which is higher than the actual title bill. Being conservative with your estimate is exactly how you should proceed as it certainly it certainly is better to be happily surprised when your actual closing costs are a little less than be disappointed and have to scramble for additional funds when your closing costs are greater than you had originally expected.

If you want a formal title bill, either as a Purchaser or a Seller, you can follow the link to Judicial Title located in the upper right hand corner and then click on "Rate Calculator" in the left hand margin. For most transactions, you will then want to choose "Simultaneous mortgage and fee insurance". Enter the proper amounts and the site will prepare a very good estimate of what your title bill will probably be.

Should you have any questions, do not hesitate to contact us at (718) 803-4113 or by email at SKAFAX@YAHOO.COM.

SUNIL K. AGARWAL, ESQ.

NATASHA S. AGARWAL, ESQ.

Please note that your actual closing costs may vary
depending on the nature of the transaction
and the terms of the contract of sale