By Renae Merle
Washington Post Staff Writer
Saturday, July 12, 2008

You looked hard to find the right house. You negotiated the right price and shopped around for the best mortgage rate.

But you're not done shopping yet.

Home buyers can squeeze out extra savings at the closing table if they negotiate on fees charged by lenders, closing companies and title insurers. Some buyers can push sellers to cover a portion of their closing costs, and the slow housing market is also giving them leverage to negotiate discounts from some of the professionals involved in settlement, experts say. Any savings can be particularly welcome to buyers already squeezed by lenders' demands for heftier down payments.

Closing costs vary by locality and loan size, with taxes the main difference, but they usually amount to 2 percent to 5 percent of the home's price. Nationally, that translates to an average $3,681 on a $200,000 home loan, according to Bankrate.com, a financial information site. The District is about $1,000 higher, Bankrate's data show.

But there are other variations in how much home buyers pay in closing costs, according to a report released this spring by the Department of Housing and Urban Development. The report found that minorities and those without college degrees pay more in closing costs. Borrowers who completed college, for example, were charged $1,100 less than borrowers who did not, according to the report, which analyzed data from Federal Housing Administration-backed loans.

The study also found that borrowers who used mortgage brokers paid more in closing costs than those who didn't, a finding the industry disputes.

To ensure that they are not being overcharged at closing, home buyers should eliminate junk fees and ask for discounts, housing experts said. Ask the lender for a written good-faith estimate, which is required after you apply for the loan, and then compare the closing costs with competitors' charges. Some things are nonnegotiable -- county transfer taxes, for example.

But that shouldn't stop buyers from challenging other settlement costs, said Brian Sullivan, a HUD spokesman. "Shop until you drop. I know it's easier said than done, but do it anyway," he said.

The complexity of closing may inhibit some buyers. Nearly a quarter of homeowners interviewed in a Federal Trade Commission survey last year could not identify the total amount of their settlement costs.

"One of the main ways to save money is to be that person who is really, obviously on the ball. Otherwise, ask a lot of questions about the closing costs, and maybe every week or so, ask about the status of the loan," said Holden Lewis, a reporter for Bankrate. "Ask: 'Why am I paying a documentation fee and a processing fee? Why am I paying an application fee and a commitment fee?' I have heard some places are charging e-mailing and PDF fees; what's that?"

Making comparisons more difficult, some lenders bundle the cost of the settlement process, offering a flat-rate for the title insurance as well as other services. Buyers who do not opt for a bundled offering must wade through lenders' disparate definitions of services to find savings.

"One lender may include a document preparation fee that the other doesn't, but the second lender has a processing fee," said Keith Gumbinger, vice president of HSH Associates, a mortgage information company based in New Jersey. "It all makes direct comparisons difficult."

Making another attempt to simplify the closing process for consumers, HUD is developing a new standard form for lenders to use when giving consumers good-faith estimates. The forms would specify which charges could change at settlement and by how much, giving customers a better opportunity to compare rates, Sullivan said. The agency is also pushing for lenders to lift requirements that buyers pay application fees before receiving good-faith estimates.

The agency anticipates completing the form by the end of the year. In the meantime, home buyers can look for excessive or unexplained fees under the current process.

A week or more before closing, a buyer should notify the lender that he or she wants the settlement statement that outlines final closing costs, also known as a HUD-1 form, at least a day before heading to the settlement table. Comparing that document to the good-faith estimate can help the borrower find discrepancies. Housing and closing experts say buyers should look for excessive costs, such as being charged $100 for a credit check, which typically costs a consumer about $30.

"There are some common things you can look for, like a $50 courier fee when it only costs $16 to send something through UPS," Gumbinger said.

HUD is also proposing to cap by 10 percent the amount certain closing costs are allowed to increase, while forbidding lenders from changing others, after the good-faith estimate. Currently, lenders are not required to abide by the costs forecast in their good-faith estimate.

There are many fees the lender or mortgage broker should be able to estimate accurately from experience, Sullivan said. "We want to limit the so-called fee creep," he said, and protect consumers from "being offered one thing and paying another -- those last-minute settlement surprises."

Borrowers may also be able to find savings when choosing a settlement agent to handle the closing -- usually a title company or a lawyer. The settlement firm oversees the technical details of closing, arranges a title search to ensure that there are no problems and acts as an agent for a title insurance company. Title insurance protects the lender and home buyer in case ownership is later challenged or an unknown debt related to the property emerges.

"Everything is negotiable; you can always ask a settlement agent to reduce their fees," said Dick Fritts, a vice president at Paragon Title and Escrow. Paragon, which serves Maryland and the District, sometimes gives discounts to repeat customers, he said.

Alison Rind, a real estate lawyer, encourages clients making large home purchases to try to use their leverage to secure discounts. "I say to a client, 'Ask them to waive the closing fee if the title insurance premium is large,' " she said. "Most title companies are amenable to providing credits in these larger transactions. You can shop around to get your best deal."

Buyers are required to buy a lender's title insurance policy that protects the lender's investment, but many also choose to purchase a separate owner's policy.

Those interested in an owner's policy may also be able to keep costs down. The basic version of the owner's policy protects the buyer against unknown debts, like those from unpaid contractors, or problems with ownership of the property that existed before the purchase. An enhanced policy goes further, protecting the buyer from future claims

The difference between the policies can be about 20 percent of the premium, according to several title company officials. "On a $500,000 transaction, that can make a $400 difference," said Todd Ewing, president of Federal Title & Escrow in the District. "Some people like all of the bells and whistles; some people don't."

Borrowers may be able to find additional savings if the seller already has an owner's title insurance policy. If the seller owned the home for less than 10 years, the buyer may be eligible for a discounted "reissue" rate on the policy, Ewing said.

That discount, which is most commonly given to owners refinancing their homes, is offered because research on the title of the property was conducted recently and issuing the new policy will not require as much work. It can amount to a 40 percent discount on a portion of the title insurance premium.

"If you can locate an owner's title insurance policy, it could be beneficial," Ewing said. The policy does not have to have been issued by the same company, he said.

Home buyers should also try to identify potential problems before settlement. "By the time you get to the closing table, it is kind of late to make serious changes" to the settlement costs, Gumbinger said.

That shouldn't stop buyers from trying. If a buyer does find unexpected charges in the settlement costs, he or she should call the lender or a lawyer to try to work it out. "Make a stink if they don't change it immediately," said Rind, a lawyer with Lerch, Early & Brewer in the District.

But buyers unable to persuade the title company or loan officer to change the questionable fees are left in a tough position. If they walk away from the deal, they risk losing their deposit and could face legal action from the seller, Rind said.

The alternative is to complete closing but file a complaint with a government consumer-affairs office and demand the difference back later, she said. "You don't want to be in breach of contract," she said.

In many cases, the disputed costs amount to hundreds rather than thousands of dollars, which may not be enough to risk the legal complications. "It's a tough situation," Rind said. "The best course of action is to get all of the figures upfront so you are not surprised at closing."