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Mortgage Shopping: Dispelling Myths About Closing Costs

There are several reasons why properties for sale in the Sooner State are unaffordable for many people, and closing costs are one of them. Similar to a down payment, these upfront fees are unavoidable, for the most part. However, they weaken your purchasing power.

For instance, the total closing cost of $7,000 reduces a $400,000 mortgage down to just $393,000. The deduction may not seem a lot, but it can delay your purchase of a beautiful piece of real estate in any nearby community.

If you are buying a house for the first time, understanding what closing costs are matters to make an informed decision. To wrap your head around how they work, it pays to know what they are not. Below are some of the most common misconceptions about closing costs:

Closing Costs are One-Time Expenses

As a mortgage company in Utah explains, the closing costs are paid at settlement. Strictly speaking, some closing costs have to be continuously paid over the life of a mortgage.

Most of the closing costs you will encounter as you shop around for loans are one-time fees. These charges include loan origination, lender, credit report, appraisal, home inspection, title and escrow, notary and messenger, and recording and wire fees.

The closings costs that need to be paid more than once are insurance premiums, property taxes, and interest. They are added into the regular mortgage payments, so your bank account just needs to be debited for everything once every month.

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Closing Costs are Carved in Stone

Like other aspects of a mortgage deal, closing costs are negotiable. You can choose not to accept the services offered by your lender and find other professionals to handle some of the tasks necessary to process the real estate transaction. For example, you may find your own homeowner’s insurance provider or home inspector to save some money.

Furthermore, proper timing can help reduce your total closing costs. When paying for prepaid interest, closing near the end of the month can eliminate numerous days of per diem interest.

Some lenders may also allow you to roll the closing costs into the mortgage. If you choose to do so, you will not have to pay them at closing to minimize your out-of-pocket expenses in exchange for a larger principal. Taking this route means paying for higher interest, so it makes sense only if you are positive that you will keep your home loan for a lengthy period.

Closing Costs Have to Be Paid by the Homebuyer

If a seller is desperate enough to find a buyer, you may be able to ask them to pay a portion of your closing costs. The maximum amount of seller contribution depends on the type of loan you are taking and the size of down payment you are willing to pay.

Usually, seller-paid closing cost maximums are generous. Property sellers are typically not keen to shell out equal to the limit the rules allow. Nevertheless, it is imperative to keep this option in your back pocket and use it when the situation permits it.

Everything about your mortgage must be carefully studied, but your closing costs deserve extra attention. The more you do your homework, the better you can strategize to keep them to a minimum.

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