When you are ready to purchase or refinance your home it is vital you educate yourself so that you are able to save money on closing costs for your loan.There are two types of closing costs for a home mortgage. First there is non-recurring fees like origination fees and 3rd party fees. Then there are recurring fees like escrow and prepaid fees.All of these fees will be listed on the good faith estimate(GFE) disclosure. This is a very important document to look over in detail. If you do not thoroughly review this document you could be getting ripped off. Not looking at the GFE is like not looking at a price tag before you buy something.Origination fees and 3rd party fees.The closing costs on a loan (non-recurring) entail the origination, points and third part fees. Lets break them down a little further. The origination fees or points are typically about 1%-3%. This is a negotiable fee so get a few GFE’s from companies and compare. If you like the service of one company but another has a lower origination fee request the company you like the service of to match the other companies fees. Be sure you have a legitimate GFE from all companies before you start negotiating. A good loan officer will ask to see a GFE before he negotiates. Otherwise you could just be making up numbers.Other non-recurring fees include all the 3rd party fees like the appraisal, processing, credit report, title fee, etc, etc. All these fees combined usually come out to about $1,500 – $2,500. These fees are not really negotiable, but often times mortgage companies will offer specials like Free Appraisal or something similar. This means they are paying the appraisal for you. There is no such thing as a free appraisal.Escrow and Pre-PaidsTaxes and homeowners insurance fall under this category. Also the recurring fees because these are typically paid every month. They can be built into your loan so you pay them with your mortgage every month. In this case the Escrow account would need to be set up.Both taxes and homeowners insurance are prepaid for 6 months. When you pay the mortgage company the mortgage payment + Insurance + Taxes payment each month the insurance and taxes get placed into the escrow account so that when they come due there is enough money to pay uncle sam and your insurance company. This takes away the stress of you having to save each month in order to pay homeowners taxes and insurance.When you are in the process of closing your loan the mortgage company will require a certain amount of money be place in the escrow account as reserves. This is to be sure there is always enough money in escrow to pay the piper. The amount of money to be placed in the account is dependent on what month of the year you are in and when you plan on closing your loan.These fees are non-negotiable because they really are not fees at all. Your money gets placed in escrow and when you sell your home or close the escrow account due to a refinance the remaining balance of the escrow account will get returned to you.GFESo go ahead and take a good hard look at that Good Faith Estimate so that you are not getting ripped of by your loan officer.And remember the numbers you actually see will vary, but this is at least a pretty good guide to help you figure out what items should cost.
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