I'm questioning my closing Costs with the bank

[Jorge J Gonzalez]

Hi BP family

I'm getting ready to close on my first income property with Wells Fargo.  Closing cost are $2792.  Wells Fargo is also adding another $3709 in "other closing" cost for a total of $6501.  The other cost includes an estimated cost of 14 months of insurance and six months of homeowner insurance they want me to prepay.  

I was expecting the closing costs of $2792 but not the $3709.  Which if I pay will not leave me with any cushion for safety.  One of the charges is "Title-Lender's Policy" for $417.  Not sure if this is a reasonable charge either.

I have a competing loan that is not charging as much as Wells Fargo.  About $1000 less at closing and the interest rate is .5% cheaper than wells fargo.

This normal?  Anyone have any advise or insight on pre-payig 14 months of insurance and taxes?

Thank you in advance,

Jorge G.

[Chris Mason]

Originally posted by @Jorge J Gonzalez:

Hi BP family

I'm getting ready to close on my first income property with Wells Fargo.  Closing cost are $2792.  Wells Fargo is also adding another $3709 in "other closing" cost for a total of $6501.  The other cost includes an estimated cost of 14 months of insurance and six months of homeowner insurance they want me to prepay.  

I was expecting the closing costs of $2792 but not the $3709.  Which if I pay will not leave me with any cushion for safety.  One of the charges is "Title-Lender's Policy" for $417.  Not sure if this is a reasonable charge either.

I have a competing loan that is not charging as much as Wells Fargo.  About $1000 less at closing and the interest rate is .5% cheaper than wells fargo.

This normal?  Anyone have any advise or insight on pre-payig 14 months of insurance and taxes?

Thank you in advance,

Jorge G.

 Hi Jorge,

Here's the LE Explainer from the CFPB.

Page 2 boxes A and B, and any lender credit on box J, are the only things that really vary by lender. 

Taxes and insurance are expenses that would exist even if you didn't have a mortgage, so those are closing costs, but they are not mortgage closing costs. For example you wouldn't be "saving" money if you didn't pay property taxes at closing, you'd just be kicking the can down the road a few months. 

I mention this because if that $1,000 less is box E, F, and G stuff, that just means the other lender is quoting unrealistically low to 'earn' your business, and the Tax Man's going to come after you for the shortfall one way or another later on. Here in the Bay Area, lenders are notorious for disclosing without the local transfer tax, which can easily be five figures, to lure consumers into thinking that they have lower "closing costs." And then what happens is the lender "discovers" that five figure transfer tax at the last minute, and only then does the consumer learn that the basis for them picking that "lower closing cost" option was completely bunk! But it's too late to switch by that point, typically, so they suck it up and have to pay that five figure transfer tax last minute.

Box C stuff also aren't things that the lender controls, even though the government calls them "loan costs." Talk to the settlement service provider (title company, escrow company, lawyer, whatever it is local to you) about these fees. The initial LE is often just the lender's software-generated estimates, not actual fees from the actual settlement service provider(s).

TLDR: Boxes A, B, and lender credit in box J, are the only things lenders have any say in. The rest, it's just a choice lenders can make to be accurate and show you what you NEED to see, or mislead and show you what you WANT to see (to be revised upwards on you at the last minute).