Saving on Closing Costs

2007-03-08 10:33:40

( Business )



After your home loan has been approved by the mortgage company or lender, you need to pay numerous closing costs. These have to be paid prior to the release of the loan.

Types of Closing Costs

There are two main categories of closing costs. The first type is non-recurrent in nature, which means that you pay them only once. Under this type are fees connected to loan discount and origination points, appraisal, credit reports, escrow, recording and transfer charges, legal and notarization services.

There are also recurrent fees that you have to pay over a period of time, such as homeowner's insurance and property taxes.

Though closing costs may run into several thousands of dollars, you can actually find ways to pay lower amounts.

Ways to Cut Closing Costs

You don't have to shoulder all of the closing costs involved in your loan. There are certain non-recurring costs such as origination points, appraisal fees and title fees that you can negotiate for your home seller to pay on your behalf. You must be sure to include this condition in your offer to the seller.

Amounts that are payable to the government remain uniform regardless of lender. Property taxes and recording fees will vary by state or city. Escrow companies charge basically the same amounts.

You can save on appraisal fees as long as the most recent appraisal of the property was done within the last six months.

It's also important to know that while you or the seller have to pay the points, the amount is actually tax-deductible. Paying more points also results in getting a lower interest rate.

Other Tips to the Borrower

There are mortgage companies that offer no closing cost loans, but beware of these. "No closing costs" actually pertain only to lender's fees, but you still have to shoulder other closing costs. Some lenders state that they have low closing costs, but actually peg the difference onto the interest rate or to the loan principal. Oftentimes it is just a trade-off between interest rates and closing costs.

Try to get your prequalification data online so that you can negotiate with the lenders for lower fees. Shop around first and then apply with just one or two lenders, since the application fee is non-refundable.

Ask your lender to give you a "good faith estimate" where they will itemize all of the closing costs. However, keep in mind that they may not be able to list all of the closing costs involved or the exact amounts.


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