When you’re buying a home, there’s plenty to worry about. How much is the down payment? What’s the interest rate? But one thing that may not be on your mind is what settlement services are and how they can impact your bottom line. Settlement services include all the professionals and organizations that help to complete the real estate transaction. These charges can vary widely, so it’s essential to understand what you’re paying for. In this blog post, we’ll discuss settlement services and how you can ensure you’re not overpaying!
What Are Settlement Services and Why Do I Need Them?
A settlement service generally includes any service provided in connection with a real estate settlement, including title searches, title examinations, the provision of title certificates, title insurance, preparation of documents, property surveys, etc.
The Real Estate Settlement Procedures Act (RESPA) prohibits lucrative kickbacks between service providers and limits the use of escrow accounts.
The Consumer Finance Protection Bureau (CFPB) is in charge of ensuring RESPA does its job. The CFPB watches over real estate brokers and settling service marketing agreements to ensure that you don’t pay more than you should. However, they also want to let real estate professionals remain competitive, allowing charges you may not wish to pay for!
For example, affiliated business arrangements allow companies to work together on services related to your mortgage. Your real estate broker may recommend a settlement agent for your real estate settlement procedures. A settlement service provider may recommend an escrow service provider for your escrow account. Your escrow officer may recommend a particular provider for issuing title insurance, and so on.
While it’s not against the law for companies to work together, you may not realize that the settlement process services rendered cost more with the recommended providers than if you shopped around.
What Types of Closing Costs Should I Expect to Pay a Settlement Company?
Settlement costs can include necessary items with inflated costs and charges you should never expect to pay. Closing services include items such as:
- Referral fees: These are kickbacks for referrals from real estate and loan agents.
- Title search: A search of public records to ensure you have a clear title and the rights to transfer ownership of a property.
- Abstracting: The process of transferring all pertinent information from a title search into an abstract (summary) form.
- Escrow services fees: Fees paid to open and close an escrow account.
- Recording fees: Fees paid to the county or state for recording title documents and other transactions related to your mortgage.
- Document verification fees: You pay the lender or servicer to verify the closing documents with borrowers, sellers, and agents.
- Notary fees: A fee charged by a notary for witnessing the signing of documents.
- Property taxes: You pay taxes at closing from funds held in escrow.
- Homeowner’s insurance: Generally paid at closing from funds held in escrow.
- Prepaid interest: Interest that accrues on your loan from closing until the first day of the following month.
- Mortgage Insurance: A type of insurance required by mortgage lenders for borrowers who make a down payment of less than 20%.
- Title agent fees: Fees charged by a title agent. It’s essential to understand what services you need and what they cost in your area.
- Credit reports: Fees charged for obtaining a credit report.
- Title insurance: Policies to protect the lender (lender’s policy) and you (owner’s policy) from title defects.
- Title services: Check for property restrictions such as easements, zoning, and other matters that ensure your ownership interest is legitimate.
- Loan processing fees: A fee charged by your lender for processing the loan application.
- Property inspections: A fee charged by a licensed inspector to inspect the property.
- Fungus inspections: A fee charged by a certified inspector to check the property for any damage associated with fungus.
- Mortgage points: A fee paid for a lower interest rate.
- Settlement/Closing fee: A fee charged by your settlement service provider for arranging the closing.
- Other services as described
While you may be excited that you prequalify for a large mortgage and can buy your dream home, watch out for unfair settlement charges!
Settlement Service Charges are Negotiable
Settlement services cover the many real estate settlement services you need to close a home. However, with so many possible fees covering a wide array of services, it’s challenging to know which are necessary. What makes it more confusing is that costs vary by state and locality. So it’s essential to understand what services you need and what they cost in your area.
Your closing agent may try to explain away services performed. But you’re making a good-faith investment and should expect to pay only what is necessary. You want your service providers to work with you for services provided fairly! Any fees should be a standard part of all real estate closings in the area.
Understanding what settlement services are and what you can expect to pay for closing costs in your locality is essential! Knowing what you can expect from each service provider will help you make an informed decision when it comes time to close on your new home.
Since the law surrounding settlement service charges is constantly evolving, it’s crucial to work with a real estate attorney when purchasing a home. They can help negotiate settlement service charges so that you don’t pay extra!
Do I Need Title Insurance for a Federally Related Mortgage Loan?
A title company will generally issue title insurance for any real estate transaction. This title insurance policy is crucial because it protects you against disputes over the title of your property, such as liens and encumbrances.
If the title insurance company finds any outstanding claims or encumbrances, these must be resolved before the property transfers to you. The title insurance policy guarantees that any claims identified during the title search have been resolved before closing.
With title insurance, you can rest assured that your property is legally yours and that no one else has a claim. This policy also provides financial protection in the case of fraud or errors in legal documents.
Doesn’t My Real Estate Agent Protect My Best Interests?
The real estate industry often charges extra fees to bring in profits. Despite what you may think, real estate agents do not work for you!
Real estate agents work for their own best interests and for the brokerage company they represent.
However, you can protect yourself with a real estate attorney. A real estate attorney only works for your best interest, helping you negotiate necessary fees and avoid extra charges.
How Can I Make Sure I’m Not Overpaying?
When you are shopping around for settlement services, make sure to compare the services and fees offered by different providers. Be mindful of what you are being charged for, what service is included in each fee, and what the market rate is in your area.
It’s also important to negotiate with your closing agent if possible. You can save money on settlement charges by asking them to lower their service fees or combine multiple services into one fee. The more informed you are about what you need, the better your chance at negotiating a fair price.
Finally, consider working with a real estate lawyer who understands the necessary settlement services and can help negotiate any additional fees. This will ensure your interests are protected and you don’t pay any unnecessary charges!
Our Experienced Real Estate Attorneys Represent YOU
At Jarrett Law, we are here to protect your best interests. Our experienced real estate attorneys understand what settlement services are necessary and what the market demands in your area. We can help you negotiate the best terms for your real estate investment and settlement process!
We work with you to ensure that you only pay what is absolutely necessary for closing costs, title insurance, and other settlement services. Contact us today to learn more about what we can do for you!