Understand Closing Costs

Written By: Michael Williams on September 10, 2009 No Comment

After all of the expenses of buying a home, many new homeowners are shocked to see how much more they have to pay at the closing. Nevertheless, buyers who have been through this are sometimes tempted to re-finance their mortgage at a lower rate, not thinking about how much the closing costs will add to the re-financing.

When a bank establishes a mortgage, there are expenses to do so. In general, many of these expenses are not determined by the bank, but are fees they are charged and pass onto the borrower. There are some fees over which the bank has control, and if they are aggressively seeking new loans, they may reduce or eliminate them.

The closing costs you can expect are : -Application fee -Origination fees (or points) -Attorney fees -Transfer taxes -Recording fees- -Appraisal -Surveys and

Depending on the state where you live, there may be even more.

As a prospective re-financer, you may want to know which of these costs can be reduced, or even eliminated, such as their application fee, and which are not under the bank’s control. 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 involved in 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. Be careful that your bank has not offered you a great loan rate, but then padded the closing costs to such an extent that they recover the difference.

You can get an estimate from other banks, and then you will be able to compare the individual items. If your bank’s charges seem a great deal higher, you should question them. Some fees, such as an appraisal or a credit check, should be fairly similar in the same geographic area. If there are exorbitant charges, ask to negotiate them.

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 figure out if refinancing is really going to be worth it by using an online mortgage calculator to find out the costs remaining 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 go to since it may save you a substantial amount.

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