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| More rates and news from Be Savvy About Closing Costs(Shopping around for the right mortgage lender and program is a very important aspect of the home buying process because you probably cannot buy the house without a mortgage.)
So, you have it set in your mind how much you expect to pay down on your deposit and how much your monthly mortgage payment will be, and then it hits you; closing costs.
You hear people who have been involved in buying a home mention these fees and costs before but you never really took the time to see how much it would affect you financially until you are faced with the reality.
The article, “Take a bite out of closing costs,” written April 22, 2004 by CNN Money senior writer, Sarah Max, explains how to avoid or at least prepare yourself from having to pay exuberant fees just before making your purchase official.
Anyone who has applied for a mortgage before can probably tell you that comparing lender fees can be tricky because they can change right up until closing day. While the U.S. Department of Housing and Urban Development (HUD) has been working on regulations that will simplify the mortgage process and save the average borrower up to $1,000 in closing fees, you can take matters into your own hands for right now to ensure you do not overpay.
You are going to want to be stingy about fees.
“There are more than a dozen kinds of fees that could show up on your final closing statement, including credit report fees, appraisal fees, document preparation fees, title fees, recording fees and underwriting fees.”
“All told, fees on a $200,000 mortgage could add up to anywhere from $1,000 to $3,000 – that's not including any ‘discount’ points you pay up front to get the best interest rate. (A ‘point’ is a fee that equals 1 percent of the loan amount.)”
Make sure that your lender provides you with a “good faith estimate” no later than three days after you apply for the loan. This is just an estimate but it will give you a basic idea of what you should expect to pay come closing time.
If the actual fees upon closing time are unjustly much higher than your “good faith estimate” you can use the document to dispute the fees or back out of the loan.
Closing costs are obviously an important concern and deciding factor when it comes to both new loans and refinancing. But at the same time, you do not want to lose sight of your main priority, which is obtaining the lowest rate possible.
“Indeed, the difference between paying, say, 6 percent and 5.5 percent on a new loan adds up to nearly $23,000 in total interest on a $200,000 30-year loan. If you have to pay a few hundred dollars in closing costs to get that rate, you can rest assured that it is a worthy investment.”
You may even be able to pay an extra point or two upfront with closing costs in order to lock in the lowest possible rate.
“Let's say that you'll knock your rate down to 5 percent on that $200,000 loan by paying an extra point ($2,000) up front. Considering that you'll cut $62 off your monthly payment and about $22,000 from total interest by going from 6 percent to 5.5 percent, it makes sense as long as you plan to stay in the house long enough to recoup those up front costs.”
Another, contrasting option, if you are short on cash, is to roll your closing costs into your mortgage premium (if applicable).
There are several ways to raise or lower your closing costs. You just have to determine what will benefit you and your financial situation the most.
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