How Can I Understand Closing Costs?
After all of the expenses of purchasing a home, many new homeowners are shocked to learn how much more they have to pay at the closing. It is important to understand these costs, especially if you are considering re-financing your home, since any savings on a new rate may disappear once you have to pay the closing costs on a new mortgage.
One would expect a bank to have expenses when a mortgage is created. Needless to say, the bank is not going to absorb these costs, but rather pass them on to the borrowers. (Although, in competitive loan markets, banks have used lower closing costs as a factor to attract new borrowers, by absorbing part of the fees.)
The following are some closing costs: -Application fee -Origination fees (or points) -Attorney fees -Transfer taxes -Recording fees- -Appraisal -Surveys and
In addition, there may be taxes payable.
One of the first questions you may ask is whether or not you can reduce these costs. In certain markets, banks may be willing to reduce or eliminate fees that they themselves charge, such as application fees. But many of the fees connected with the closing of your mortgage are not under the control of the bank, such as the appraisal fee, the legal fees, etc.
The first step you should take to find out whether you can reduce you closing costs is to get a good faith estimate of the costs. This gives you the opportunity to look at each of the closing costs and see if any of them can be lowered.
If you do find that any of the costs are not in line with standard rates (you can call another bank and ask them what their fees are-this will apply in some areas, such as an appraisal or a credit search, or you can file another application and get another good faith estimate), call them on it and request to negotiate the item.
Now you are familiar with how much your closing costs are going to cost, and you have made some negotiations in reducing them, you can calculate if refinancing is really going to be worth while by using an online mortgage calculator to find out the costs left on your present loan.
Don’t forget that the new loan will now also cost all of the closing costs you will have, so add them to the calculation. You will now know whether or not a re-financing is a good idea or not. This is not a lot of trouble to take since it may save you a substantial amount.
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