Lender Related Closing Costs
Buying a home entails much more than simply signing on the dotted line and getting the keys for your new house. Just as it is important to find the right house for your family, it is important to find the right carrier for your mortgage. Shop around and compare loan providers. Gather quotes and proposals and be sure they are competitive on the really important issues. Check out the complete package, including closing costs, restrictions, interest rates, and other important details.
You Will Pay Closing Costs
You will be paying closing costs, regardless whether the loan is "no cost" or a standard mortgage. Be sure your costs are reasonable and, even though it may look attractive, don't always go for the lowest costs. If you are offered "nothing up front", you can almost be assured the costs are hidden somewhere, either in higher interest charges or stiff penalties for prepayment. It may look good today, but in the long term, you may be letting yourself in for a very expensive loan.
When discussing a mortgage with a broker, be sure you are shown all of the costs and watch how they are quoted on your good-faith estimate. Some brokers show you all of the costs while others cut several out. Of course, the more costs shown, the more expensive the loan appears to be. You really do have to careful about the individual costs of items because some are estimates only-the lender has no control over some of the items.
Lender Related Costs
Lender related closing costs are often guess-timates, so if a lender quotes lower closing costs on some items you may be paying more elsewhere or end up surprised at the higher rate. In order to compare effectively, take away all of the costs that are not lender related, such as title costs from the seller's company. Some of the closing costs are the same, like document recording fees, no matter what company you decide to go with. Compare interest rates, costs, and the terms of the loan from each of the estimates you've gotten from the various loan institutions.
Fees-Origination, Appraisal, And Underwriting
Some of the common closing costs that vary with each lender include such items as origination fee. The exact use for this particular fee is not always clear, but, at the end of the day, it pays the lender for establishing the loan. A buyer can expect to pay between 0.5% to 1% for origination fees. The appraisal fee is charged in order for the lender to have an appraisal of the property completed. The appraisal will give the lender a good idea of the real value of the home and property in the event of a default on the mortgage where the lender has to resell the property. Underwriting fees are charged to determine the responsibility of the buyer in terms of loan repayment. Risk value is another way of saying it. The usual charge for underwriting fees is roughly $300 in the US.
Good Faith Estimates
A good faith estimate gives an idea of the costs the lender will charge. This is not a firm quote and should not be taken as such. A buyer will at least get a good idea of the costs that lay ahead with a good faith estimate, however, none of the prices are guaranteed. Some of them are educated guesses and some of them are pulled out of the hat. Interest charges can change, costs are included that aren't even charged, and some costs are given that the lender has absolutely no control over. If the broker is honest, the good faith statement can be useful. If the broker is less-than-honest, the estimate isn't worth the paper it is written on.
