Closing Costs: Title Insurance & Property Tax

If you're in the market for a home or have purchased a home you're all too familiar with closing costs. When it comes to closing costs the list seems to go on and on. The bad news is that many of these closing costs are just not avoidable, but the good news is that many of the costs can be reduced or eliminated completely.

Over the last few years lenders have become accustomed to relying on buyer closing costs as a regular source of income. They know that buying a house is an emotional purchase. So, when you sit down at that closing table and you're presented with a new list of costs, most people just don't want to risk the loss of their dream home, so they accept it as inevitable. But, it does not have to be that way. In fact, many of the nefarious fees your lender presents you with are negotiable. You just need to speak up. Ask for an explanation, item by item. This is an excellent way to negotiate, as your lender should be able to justify each and every cost. Individuals that have tried this have had their closing costs reduced drastically.

Some of the fees you'll see are things like processing and underwriting fees. What the lender is doing here is charging you a fee to process the loan that you're paying them to underwrite. So, you're paying them to do the work that they will get paid for. It may sound ridiculous, but lenders are notorious when it comes to this double dipping. They've been doing it with title insurance for years. They require title insurance, which protects them, and not necessarily you. This protection is seldom needed, yet they require that you have it, so that they're protected. What's more, they commonly get kick backs from title insurers, as they almost always refer the business because most people don't know where to look when it comes to title insurance. So, again you're paying them, so that you can purchase insurance that protects them. Always proceed to the closing table with caution, you'll save a great deal.

One of the reoccurring closing costs that can't be avoided is the property tax. The property tax has never been a popular form of taxation. Save for a major tax repeal the property tax is here to stay. It plays a major role in our local infrastructure, without it our schools, fire departments, and other municipalities would scream to a halt. So, until something drastic happens we just have to accept. Some states are more property tax friendly than others. You can pay anywhere from the low 1 percent range all the way up to over 5 percent depending on your state of residence. This can be rather painful with the recent rise in housing costs. Many states enacted prop 13 like measures, modeling after California to insure citizens didn't get stuck with unreasonably rising taxes. For recent purchasers this can also prove beneficial, as adjustments can be made as property values drop.

Regardless of what state your reside in property taxes probably make up one of your largest housing costs. When that property tax bill comes around it's nothing short of agonizing. One way to reduce some of the property tax pain is to spread out that property tax bill. You can do this rather easily through your lender. Setup an escrow account with your lender that includes your monthly house payment, insurance, and property tax all in one payment. By spreading out these housing expenses you'll improve your budget and won't be feeling quite as much pain.