Even the best mortgage broker can’t always help the exorbitant closing costs that can be charged on a mortgage. However, there are some things you can do to help keep the costs down- here are our top tips.
Why have closing fees gone up?
Sadly, it’s yet another case of the lenders passing costs on to you. New regulations and safeguards put in place to keep you safer have, of course, led to greater costs to the lenders, and they have passed them right on down the line to you. These closing costs can be set up in certain ways. Ones where the lender pays all costs are known as ‘zero-closing cost’ mortgages. This isn’t a free ride though- this is done in return for a slightly higher mortgage rate. Third part closing costs occur when anyone other than the lender contributes to the costs- this can be tax fees, insurance on the title, credit reports and appraisal costs.
What mistakes should I avoid?
Borrowers do try to get zero cost closing fees, but they’re not the only option you have. You may well prefer the lower mortgage rate offered, and want to take the closing fees in return. It’s important not to overpay on the discount points. This one time upfront fee is paid to let you have lower rates then the market average. They’re usually calculated as a percentage of the loan size, so the larger the loan the more hefty these costs will be. Make sure you get good advice from your mortgage broker about what amount of these to pay is worthwhile for you, and where you are overpaying, as it can be a tricky market to try and tread. There are even occasions where that may be zero. More details in this link: http://www.zillow.com/mortgage-learning/closing-costs/
Likewise, only use zero closing when your mortgage broker or advisor thinks it is appropriate. Remember that your mortgage rate will increase accordingly, and it’s a fine line to tread. Likewise, make sure that you are buying the right type of loan for your needs. Some programs help those with less than perfect credit, or to certain types of loaners, but this can sometimes come at a hefty price. It’s important to do your research correctly into what closing and long term costs each loan type will come with, and make sure you are opting for the right loan for you.
Balance the rate lock correctly.
Make sure that you choose a good time frame for your rate lock. You don’t want to miss out [and pay anyway] by choosing too short a period, but at the same time if you go too long you will end up paying way too much unnecessarily. The longer the period, the higher the costs in return for the ‘favour’ of locking it. It is better to over pay then under pay here, but it’s a tricky balancing act- make sure you take the advice of a good mortgage broker to get it right.
Closing costs are a horrible part of the mortgage process, but can be managed with the right mortgage broker.