2 Foolproof Ways to lower Total Closing Costs on ANY Loan Estimate or Closing Disclosure!
Let me start by giving all of the credit for these two secrets to lowering your total closing costs to the Consumer Financial Protection Bureau (CFPB). Without the CFPB, this trick would not be possible!
The CFPB was established by the Dodd-Frank Act to form a new financial agency that would focus on protecting consumers, and consolidates most financial authority in one place.
A big move in the mortgage industry was the CPFB’s “Know before you owe” campaign, which is built around the concept of providing simple, easy to read and understand disclosures to consumers with final numbers at least three days before signing final paperwork. It sounds great, doesn’t it?
To implement this, they announced the TRID rule (TILA- RESPA Integrated Disclosures), which went live on October 3rd. This replaced 2 inferior initial disclosures, with one, easy to read, 3-page “Loan Estimate” (LE), and 2 confusing final disclosures with one “Closing Disclosure” (CD), which must be in the consumer’s hands at least 3 business days before closing.
The rules and regulations for mortgage lenders governing these new simplified disclosures are 1882 pages long. I’m not even going to comment on that.
The new forms look great! I mean it, as far as financial forms go, they are pleasing to the eye. They have also really simplified things by organizing them into nice sections. Now here’s where it gets interesting, someone decides to take it a step further, and make it even simpler by tossing generally accepted accounting principles aside, mixing liabilities and assets, expenses and prepaid expenses, and calls it all a “cost”.
For example, the “Other Costs” category is a mix of expenses (which create liabilities on a balance sheet) and prepaid expenses (which create, or remain as, assets on a balance sheet). Add “Other Costs” to “Loan Costs” to get “Total Costs”, and you’ll have an even deeper mix of expenses and prepaid expenses.
Here is the disclaimer, as I’ve just explained, “Total Costs” are meaningless, but I promised to tell you how you can always lower them, so below are two sure-fire ways to do it!
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Set your closing date so that your loan funds on the last day of the month. This will lower costs on any Loan Estimate by up to one month’s-worth of interest.
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Close your loan the month after property taxes were paid. This tip can save you between 5 and 11 month’s-worth of property tax costs on your Loan Estimate, depending upon your state.
VP of Mortgage Lending at Guaranteed Rate Affinity NMLS# 543275
9yMitch, if you read the post thoroughly, my point is that the new disclosure is misleading because these two things actually DO lower both "other" and "total" closing costs- as the CPFB defines them. Your point, more specifically, is that most customers equate actual expenses to closing costs, and so to lump prepaid expenses in with actual expenses is not only not useful, but can be misleading, and should be changed. On that, we agree!
Managing Partner at The Distinction Team Lending Powered by AXEN Mortgage
9yThis is a misleading post. Neither of these lower closing costs. They have an effect on Pre-paid expenses and nothing else. If you close the loan at the end of the month you will owe less interest on the new loan at closing but will owe more interest on an existing mortgage or another month of rent.