Some of the most common phrases that I hear when talking with buyers are, “What are closing costs? Who pays them? Why are there closing costs?” A very common misconception is that closing costs are the fees that lenders make on the purchase or refinance of a property. Many clients believe this as fact, that is until I enlighten them and let them know exactly where those costs go to and why they are required. So, what do you know about closing costs? Is this something that you believed as well?
Closing costs are a mixture of different fees associated with closing on a mortgage. These can include, but are not limited to, appraisal, application, underwriting, title, escrow, insurance, and other items within the loan process. The reason that there are fees associated with the loan is because there are costs associated with obtaining a mortgage. These costs are here to help you out. For example; an appraisal is necessary because you and the lender need to know the value of the new home. At the bare minimum, the appraisal should appraise at what you are buying it for, or more. If not, then you have the opportunity to renegotiate the purchase price. Title fees are to make sure that you are buying a home with no liens and you are getting it with a clean title.
Now, there are lenders out there with some high closing costs, such as origination points, discount points or broker fees. I actually spoke with a client about a month ago, and they knew a lender and planned on going through with them. After speaking with them, I was half percent lower in rate and about $3,000 lower in closing costs. I couldn’t believe how much they were charging for their services. I guess that is the downside of doing business with companies that have astronomical marketing costs, those costs get carried over directly to the consumer and you’ll notice that with the rate and costs associated with the loan. Check out this article from Money Magazine on what closing costs average.
Now there are ways to offset some or all of the closing costs. A simple way to do this is to negotiate the closing costs to be paid for by the seller. Most cases, the sellers will pick up the cost of obtaining the financing. You can also choose to have your costs paid for by the lender, in order for this to happen, you will receive a interest rate that is higher than the current market rate. Basically, you are financing the costs into the loan for however long the term of the loan is. Another way to do so is to pay them yourself, this is the most ideal if you have the funds to do so. Paying your closing costs upfront is the most simplistic and cost effective way to pay for these. If you pay them upfront, you don’t have to worry about financing them into the loan by taking a higher than market interest rate.
So here is what I recommend. Talk to a pro, such as myself (you like that marketing plug right?) and figure out what is going to be the best path for your financial situation. You want to speak with someone who is going to achieve both your short term and long term goals. I recommend you download my FREE mortgage app for your cell phone and stay up to date on all market trends and interest rate trends. You can do so by clicking here. You can contact me anytime via my website at www.TheRockstarCloser.com or you can always call/text me at 219-973-6644. I will make sure to help you and give you the options that you deserve in order to make the best decision for you and your family.
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