Mortgage closing costs can be one of the most difficult aspects of buying a home or refinancing a current mortgage. Costs can be high, ranging anywhere from 2%-5%, depending on your locale, lender, and type of mortgage. (See also:How to Choose the Right Mortgage Loan Term)
Typical costs include the application fee, origination fee, and fees for home inspection, appraisal, credit report, and an attorney or closing agent. Some, like the application fee, are paid to the lender. Others, like the appraisal and home inspection, are paid to third-parties and have less room for negotiation.
Homeowners may feel they have little control over the charges. On top of that, most closing costs are not tax deductible. Nevertheless, it’s possible for home buyers and homeowners to reduce their closing costs.
1. Shop Around
When shopping for a mortgage lender, ask lenders about their closing costs when you ask about their interest rates. Ask about their application fee, loan processing fee (also known as an underwriting fee), and third-party fees paid to others, such as appraisers. Are fees refundable? When are they paid? Most home buyers will just ask about their mortgage rate, but they should also shop for the lowest lender fees, especially the origination fee. Try to nail them down and don’t be satisfied with a general “three percent of the loan amount.”
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