When you first get a mortgage, you have to pay a decent sum of money in the form of closing costs, which vary due to many factors. Those factors include the type of mortgage, mortgage amount, and third-party services. Here’s what you need to know.
Closing costs are in addition to your down payment and typically are several thousand dollars. Closing costs are also in addition to the cost of the property and need to be paid at the time of closing.
A substantial portion of closing costs are applied to third-party services. Costs for services like the appraisal, inspection, title search, credit check, escrow fees, title insurance, and courier fees are often included in closing costs, although you might pay for some services when they are rendered. You can avoid paying for some of these third-party services, such as courier fees, by picking up or delivering documents yourself. Ask your real estate agent, mortgage broker or lending officer, and escrow officer to work with you to minimize extra costs. And when you sign the closing documents, go over each fee with the escrow officer. Part of their job is to explain of the documents to you.
You can negotiate closing costs. When you are negotiating the price of your house, you can ask the seller to pay for some of the closing costs. The likelihood of success with this strategy depends largely on market conditions. In a buyer’s market, a seller is more likely to agree to help with closing costs than in a seller’s market. And, if you receive a quote from a lender that includes lower closing costs than the costs quoted by your preferred institution, you can ask your preferred lender to match the other lender’s costs, though your likelihood of success will vary by lender.
Points are paid at closing. Points are a fee that you can pay to lower the interest rate on the mortgage. They are typically 1% of the loan amount and are generally paid upfront at closing. Naturally, this will raise your closing costs so you will have to run some calculations to determine whether it’s worth paying for points. You may be able to roll the cost of points into the mortgage, but you would then be paying interest on the amount borrowed and therefore may not save money in the long run.
You still pay closing costs with a “no-fee” mortgage or refinance. With such loans, the closing costs still exist. But they are rolled into the mortgage, so you don’t have to pay those fees out of pocket. However, you do end up paying extra interest because the closing costs get added to your total loan amount. This increases your monthly mortgage payment and the total amount of the closing costs.
Closing costs are an inevitable part of getting a mortgage. But keeping the above information in mind can help you keep those costs down.