Home Loan Guidance Topics

Should You Pay Your Own Closing Costs


...Or should you have the lender or mortgage broker do it for you?

There are so many different closing fees that can vary depending on what state, county, and city the home is in. Further, the ethics of the mortgage broker weighs in heavily on what your closing costs could be. It would take an entire book to educate a consumer on each potential closing cost and then determine what a reasonable fee should be for each of them.

Government regulations have tried to help the consumer by making it a requirement for a mortgage source to estimate closing fees at the beginning of the deal. Estimates must be within $500 of the final actual costs. However, how are you to know if even the estimate is correct? Many people have found themselves surprised by unusually high, unfamiliar fees at the closing.

So here is a powerful method to consider for making sure you don't have to deal with last minute closing fee problems... Get the mortgage broker or the lender to pay all of your closing costs through the interest rate.

How is this done? Basically, the mortgage source will quote you an interest rate that allows for the lender to provide the funds for paying your closing costs. If the mortgage source knows how to keep those closing costs low, she can make more money.

If the mortgage broker pays your closing costs, you will have an interest rate slightly higher than if you pay the closing costs yourself. The length of time it takes to save enough in interest payments, to justify paying your own closing costs, becomes one of the deciding factors. Just like points, the money you put toward closing costs could have gone toward a higher downpayment.

We have noticed that when the consumer pays her or his own closing costs, many new costs seem to appear such as special "packaging fees," "after-hours meeting fees," special-service-of-some-other-name fees. Frankly, we've been amazed to discover how many strange and new fees appear when the consumer is paying them. Make no mistake, these fees can amount to hundreds of dollars right out of your pocket and into the mortgage professionals'.

Some consumers like to have the mortgage loan run both ways, with several mortgage sources, and compare loans on that basis.

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