How good of deal you’re getting on your next home loan depends not on the interest rate, but how much you’re paying in closing costs. How much are closing costs? Your fees vary by region and the type of program you’re choosing; however there are things you can do to pay less. Here are 5 ways to pay less and get a better deal closing on your next home loan.
How Much Are Closing Costs?
The answer to this question depends on you. Did you agree to pay discount points? Are you purchasing or refinancing with an FHA home loan? How much did you agree to pay for the loan origination fee? Are there junk fees in your closing costs like processing, administrative and rate lock fees?
It can be difficult to understand which fees or discount points found on your Good Faith Estimate are necessary and whether or not you’re overpaying. How much are closing costs? Many financial advisors will tell you to expect to pay 3 to 5 percent of your mortgage amount; however, you can do better.
Shopping around and comparing closing costs can save you thousands of dollars AND help you avoid paying lender junk fees. Here are 5 ways to save by avoiding unnecessary fees and comparison shopping correctly.
5 ways to pay less less
- Shop Smartly For Your Next Mortgage
- Pay Attention To The Right Closing Costs
- Beware Unnecessary Discount Points
- Shop The Loan Origination Fee
- Get Everything In Writing
Shopping around will help you pay less in closing costs if you go about it correctly. The first thing you need to do whether you’re purchasing or refinancing is choose a program and stick with it. Do you need an FHA home loan with a 30 year fixed rate? Make sure all of your quotes are from this program.
Comparing quotes on different programs from different lenders will not give you an apples-to-apples comparison of closing costs. Don’t let a fast talking loan officer confuse you by quoting fees on a 5/1 ARM when you need a 30-year fixed rate mortgage.
Third party fees are out of your lender’s control and cannot be negotiated. The closing costs you’re interested in are found on page 2 of the new Good Faith Estimate.
Box A shows the loan origination fee and any Yield Spread Premium offsetting your closing costs. You will also find discount points required to get your mortgage rate.
Box B items 3 and 6 list closing costs you can negotiate including lender junk fees and items you can shop for.
Don’t agree to pay for a lower mortgage rate. Discount points are a closing cost you pay to lower your interest rate. Mortgage rates are still at historic lows and paying thousands of dollars out-of-pocket just to lower your interest rate by .125% is hardly worthwhile.
Your mortgage origination fee can make or break the deal you’re getting. Many brokers quote one percent as standard for loan origination; however, I’ve reviewed community based credit unions that charge as little as $400.
Don’t be afraid to question closing costs. Many loan officers won’t negotiate closing costs because the lender will take the fee out of their commission. Don’t be afraid to walk away from a loan officer unwilling to negotiate closing costs.
This includes lender junk fees like loan processing, rate lock, or courier fees. Lenders dream up all kinds of different names for closing costs to confuse the issue. Question everything and don’t be afraid to walk away.
If your loan officer agrees to modify your closing costs make sure you get it in writing along with your mortgage rate. If you don’t have it in writing it never happened.
Don’t overlook the HUD-1 settlement statement at closing. This document can be much more confusing than the new Good Faith Estimate but is the final word when it comes to your closing costs.
If you catch new or higher closing costs on your HUD-1 be sure and question them. Your home is the single most important purchase most homeowners make in a lifetime so never sign any document you don’t fully understand.
How much are closing costs? As you can see there’s no definitive answer to the question and your closing costs depend on how much time you invest shopping for a better deal.
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