Closing Costs
Closing costs are the fees you pay to get a loan. Your broker discloses these fees to you on a Good Faith Estimate. Closing costs include broker fees, underwriting fees, attorney fees, appraisal fees and others your broker will explain to you. A lot of work goes into getting your mortgage. Your question should be 'How much should I pay in closing costs?'
Figure your closing costs as a percentage of your loan amount. That percentage can be anywhere from 2% - 8% as a rule of thumb. Smaller loans will have a higher percentage because a lot of the fees are fixed. An appraisal costs about $350 whether its for a $50,000 house or a $650,000 house.
Also, the more work a mortgage company has to do to get you approved, the more you will be charged. Obviously, you want the best deal possible in regards to downpayment, interest rate and fees. However, you have to be honest with yourself. Are you an easy approval? Do you have really strong credit, cash and employment? If you can anwer yes to all three of those categories, then yes you should get the best offer currently available.
However, if you are lacking in some areas, you need to realize you will have a higher interest rate and more fees. Everything in life is a trade-off. Make sure you are an informed customer with good content and context, so you know where you fit in the market.
Getting Your Seller to Pay Your Closing Costs
This is one of the most powerful ideas in mortgage lending. This idea alone will save you thousands of $'s in out of pocket expenses. I'm extremely surprised that more mortgage brokers don't use it.
As you negotiate with a Seller, find out their final price. This may take numerous offers and counter-offers or they may simply tell you 'I need xxx amount for the house.' Once that figure has been reached, ask the seller to pay 'X' $ amount of your closing costs and offer to increase the purchase price by that same amount.
Now, you're thinking 'but I'm paying more for the house!' That is true. I didn't say you could get free closing costs. This is simply a tool. What you are doing in effect is financing your closing costs.
It can be a very smart thing to do when you consider that interest rates on a mortgage are very low compared to most personal loans or credit cards. And, remember the interest you pay on your home is a tax deduction.
Besides, the main point is that most home buyers are limited in cash. If you have enough money, then certainly use that to cover your closing costs. However, if you are tight for funds, this is a great way to ease the pressure. There are many other things that will require your cash. New curtains perhaps?
