Closing Costs

Manage Your Mortgage's Closing Costs

When shopping for a mortgage, it's important to compare apples to apples.

As you gather quotes and proposals from various loan providers, make them compete on the most important things.

Just because one provider has lower closing costs doesn't mean it's your best bet. You have to look at your mortgage as a complete package -- including closing costs, interest rates, restrictions, and other features.

Closing Costs

It's important to pay reasonable closing costs. However, don't always go for the lowest closing costs. If you pay nothing upfront, your "costs" may be baked into your loan in the form of a higher interest rate or stiffer prepayment penalty. Although you're saving a few bucks today, you might be buying an extremely expensive long-term loan.

Be careful about how closing costs are quoted on your good-faith estimate. Some mortgage brokers will show you every closing cost imaginable, while others will exclude a few. Of course, an honest person will show you more items, but the loan looks more expensive. You also have to be careful about how much each item costs. Some costs are simply estimates, and the lender has no control over them.

The most important thing for you is to watch the lender related closing costs. Otherwise, you may find that a lender quotes lower closing costs for certain items -- but it doesn't matter because they're guessing anyway.

Lender Related Costs

To compare mortgages effectively, strip out any costs that are not lender related closing costs. These may be costs from the seller's title company, or a local government. Then, compare the interest rate, costs, and terms of each loan. This will give you the "apples to apples" comparison that you need.

Packaging Closing Costs

Some lenders might package your closing costs for you. They may refer to this as a "flat" closing cost and guarantee that your closing costs will be below a certain dollar value, such as $2000. If this is the case, take a good look at which costs are included in the guarantee. You want to compare the maximum cost of these guaranteed items with other proposals that you get.