How to get a good deal on closing costsBy John F. Wasik
Although you can get a great deal on mortgage rates, you can easily pay too much on closing costs.
The necessary expenses of appraisals, title insurance, credit checks and other fees can add up to thousands of dollars. You can reduce those costs by getting multiple quotes and negotiating.
With 30-year loan rates averaging around 4.3 percent and 15-year rates at 3.8 percent nationally, according to Freddie Mac, now’s a great time to refinance or buy.
Shopping multiple sources pays off. With closing costs up 37 percent — that’s an average $3,741 on a $200,000 loan according to Bankrate.com — you can put a lot more money in your pocket while getting some of the best rates in a generation.
When I refinanced late last year, I started the process knowing that getting a decent rate was only part of my mission. I wanted to get closing costs under $2,000, which was challenging considering I was seeing most quotes above $3,000.
Not only are closing costs numerous, they can get onerous. In addition to making money on the loan, many lenders will slap on “junk” fees like processing or underwriting. You can avoid these fees by going to another lender or negotiating.
The best financing strategy involves first detailing the fees and your total cost.
“Are you getting the best rate possible for the lowest fees?” asks Sam Tamkin, Chicago-based attorney who handles real estate closings. “And if you’re getting an adjustable-rate loan, do you understand how they adjust?”
It’s not unusual for buyers and refinancers to pay from 3 percent to 5 percent of the total cost of the home in closing costs. The total expenses are largely a factor of where you live. Large metropolitan areas tend to be most expensive.
Here’s a strategy that will help you reduce costs:
• Always sample a variety of lenders and brokers. Consider Internet services, local banks and credit unions. You may be able to apply online for basic quotes, but make sure you get a good faith estimate of all costs. You may need to make some phone calls to get closing estimates.
• Compare all fees. Some lenders charge underwriting and processing fees while others don’t. If you find a lender with a desirable rate — and its fees are high relative to other lenders — ask to trim the closing costs. Do this before you sign up for a credit check and send in your Social Security number.
• Title Insurance is costly, yet required. It can range in price from $150 to $1,000 or more. Some states regulate the price. A good mortgage broker may be able to get you the best price.
• Read your HUD-1 statement carefully. This is the form that lists all closing costs before you close and is available at least one day prior to closing. Keep in mind that you can walk away if previously undisclosed fees were added.
While I’ve found that the best rates are often obtained through mortgage brokers — they do the searching for you — there is no such thing as a “no cost loan.” They make their money through a “yield spread premium.” So their profit would be charging you 4.4 percent on a 4.3 percent loan — a “spread” of 1 percentage point — for example.
Although there have been several efforts to streamline the closing process, it still can be confusing and you will need to review a mountain of forms. Fully understand what you’re signing.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream and a Reuters columnist.
Photo: Home for sale in Los Angeles REUTERS/Mario Anzuoni