I just refinanced my house. Again. My husband and I are so grateful to have been able to take advantage of yet another drastic dip in rates. But when you refinance, don't get so hung up on the fabulous low interest rate you're getting that you forget to scrutinize the closing costs you'll be paying for the privilege. Often those costs are so abusively high that they take a big bite out of the savings you are achieving by snagging a lower rate.
Title insurance and associated charges can be the biggest shock of all. They are typically the priciest part of your closing costs and it's all rather mysterious. For example, we got Good Faith Estimates from two lenders, and one quoted us $2,430 for Title Insurance and other title services provided by their affiliate. The other quoted $4,366 –nearly twice as much-- for the same thing. Huh?
That's a big enough difference that I felt compelled to ask Lender Number 2 some follow up questions. (Lender 2's interest rate was much better, so I was eager to see if I could bring their fees in line.) I demanded to know why the title services were so high and made sure they knew I had shopped around and gotten a quote of just $2,430 elsewhere. The upshot? Lender Number 2 claimed they were required to quote the highest possible amount they might have to charge. I was skeptical, but then they said the real charge would be only $1,390 and I was thrilled! I have a feeling if I hadn't asked some terse questions, with the implied threat of going elsewhere, that I would have been paying $4,366. So one 10 minute phone call saved me nearly $3000!
The price difference may be partially explained by what's called the "reissue rate." To explain that, I need to explain title insurance. Title insurance protects you if somebody comes along and claims they have a legal right to your property. Maybe a divorcing wife sold you the house and now the ex-husband shows up and says she shouldn't have. Title insurance will pay your legal fees in a case like this and even pay for your loss if you end up having to give up the property.
If you are refinancing --or buying a house that the seller purchased less than 10 years ago-- the reissue rate is available to you. The idea is that a shorter time period means a shorter title search so a "shorter" fee is in order. The discount ranges from 25 to 60 percent off, with 40 percent being the most common.
Here's the rub: Many title companies won't offer the reissue rate unless you ask, and believe it or not, the government doesn't require them to. So ask. Inquire. Demand! In order to qualify for the reissue rate, you may have to provide proof that there is a valid title insurance policy in place. If you are refinancing, that's easy. Just dig up your old policy. If you are buying, ask the seller if they can provide a copy of their title policy. Most sellers will happily do this because they are asking the same favor of whomever they are buying their next house from.