Whether you are applying for a purchase or refinance mortgage, you are bound to pay closing costs. The settlement of these costs and fees is part of the mortgage process; they are inevitable but can be lowered or negotiated. Indeed, we have gathered a number of tips that will help you lower your mortgage closing costs.
Refinance vs Purchase Mortgage Closing Costs?
Did you know that the aspect of paying mortgage closing costs is one major difference between a refinance and a purchase loan? In refinance transactions, it’s all too common to finance these closing costs into the loan. Homebuyers however need to ask permission from their lenders to add these costs into their purchase loans.
To guide you in your mortgage endeavors, lenders are obligated to provide a Loan Estimate, which is the Good Faith Estimate and Truth-in-Lending disclosure combined. It is to be provided within three business days of loan application.
The Loan Estimate sets forth the costs at closing, the projected payments and the loan terms. With respect to closing costs, the lender will put out an estimated sum together with the estimated cash needed for closing. A breakdown of the closing costs follows whereby services whose costs a borrower can shop for and can’t shop for are identified.
Lenders are also required to provide a Closing Disclosure which is a more detailed breakdown of costs associated with the loan and the cash needed to close. This disclosure must be given to the borrower at least three business days before the consummation of the loan, which is not necessarily the closing date of the loan but when the borrower became obligated on the loan.
Saving on Your Closing Costs
1. Shop Til the Costs Drop?
Make it a habit to shop for rates and closing costs, too. Obtaining two or more Loan Estimates makes it easier to compare which lender charges more on what service and which loan is more expensive at closing. This is especially helpful in finding alternative service providers for services that you can shop for on the Loan Estimate. Find a reputable service provider that can earn your lender’s approval.
You can further use the Loan Estimates as a good bargaining chip when dealing with other lenders. You can present one lender’s offer to another lender in negotiating or bringing down the other loan’s closing costs.
Do some research on the closing costs related to your neighborhood as well. Closing costs can vary among states and even among counties whereby the higher-cost ones would fetch higher closing costs.
2. It’s in Your Interest to Timely Close Your Loan.
Experts recommend that you time the closing of your loan by the end of the month to avoid paying additional charges on prepaid interest. A prepaid interest accrues between the date of closing and the end of the month. So if you will close near the month’s end, you’ll pay less in charges.
3. Know Before You Owe
When you have both disclosures on hand, compare them to detect any substantial changes that could inflate your closing costs or a specific service. Call the lender’s attention and ask for an explanation.
If there are things that you don’t understand in either document, e.g. why this fee has changed substantially or why this lender demands a higher fee for this service, ask the lender outright or consult with a real estate lawyer. It’s in your best interest to have these points clarified before you sign on any loan contract.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.