You’ve gone all the way through the mortgage process and it’s time to close your loan. What are all these closing costs and why do they change?
And we get it. Closing costs are a turnoff. If everyone had a bunch of money to bring to the table, we wouldn’t need mortgages. What can you do to help keep the costs down? We have some tips.
What Goes into Your Closing Costs?
When you close your loan, you often have to bring a certain amount of money to the table. Here are some of the variety of things this payment at closing covers:
- Taxes and homeowners insurance paid into an escrow account
- Interest points purchased to bring down your rate
- Title transfer fees
- Additional appraisal costs, i.e., a property survey
- Homeowners association dues
- Real estate agent fees
Why Do They Change?
When you apply for your loan, you get what’s called a Loan Estimate (also known as a Good Faith Estimate or GFE). Unfortunately, it’s just that, an estimate. Lender fees and rates are pretty tightly controlled in terms of how much they can change between the GFE and closing. However, third-party fees, including appraisal, home inspection and tax certification can go up as much as 10%.
A tricky issue can arise in a refinance scenario. If your appraisal comes in lower than expected, your loan-to-value (LTV) ratio may be higher. A change in your LTV could mean you have to pay more in prepaid interest points at closing in order to lower your payment and get a certain interest rate.
The amount for the tax certification or the amount needed in prepaid escrow could also change and cause upfront costs to push up. If there are any homeowners association dues, a lender wouldn’t necessarily know about those until it got closer to closing time.
How Can You Keep Closing Costs Down?
What can you do if you still want to close the loan, but costs are becoming prohibitively expensive? You have a few options here.
You could negotiate concessions from the seller into the deal that would help pay for closing. A seller that’s looking to offload the property may be open to some give-and-take.
In a modification of this strategy, you could negotiate seller’s concessions in exchange for paying a higher price for the home. You would effectively be rolling your closing costs into the mortgage amount to be paid off over the life of the loan instead of worrying about it upfront.
Finally, taking a slightly higher rate may allow your lender to give you credits to cover part or all of your closing cost. Doing this would allow you to still close the loan without having to spend so much money up front.
That about closes out this article on closing costs. Still got questions? Leave us a note in the comments.
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