Posted August 8, 2014Tweet
It's getting more expensive to get a mortgage.
According to Bankrate.com's annual Mortgage Closing Cost Survey, mortgage applicants are paying 6 percent more to get a mortgage as compared to last year, on average.
There are ways to limit your closing costs, though, including knowing for what costs you can "shop around" and knowing to request a "zero-closing cost mortgage".
Mortgage "closing costs" are fees consumers pay to start a new mortgage, and can be grouped into two categories.
Origination/Lender fees are fees paid in conjunction with your loan's origination. They include line-items from your settlement statement and may include an application fee, a rate lock fee and/or origination points, for example.
Origination fees masquerade under different labels from bank-to-bank, and from product-to-product. One bank's "underwriting fee" is another bank's "processing fee", for example; and, VA loans and FHA loans require certain loan fees which don't exist with loans via Fannie Mae and Freddie Mac.
Because of how fees are labeled, rate shoppers who try to compare multiple banks "fee-for-fee" tend to strike out, and feel frustration.
A better way to compare fees, then, is to ignore the individual line items of a lender's Good Faith Estimate disclosure. Rather, focus on the sum of the lender's origination charges. The sum is inclusive of all fees and makes for simpler comparisons.
Look for Section 800 on your Good Faith Estimate (GFE). It's the section in which origination fees and lender charges are listed and summarized.
The second type of closing costs are "third-party" costs.
Third-party costs are fees paid to parties other than your mortgage lender. Third-party fees can include the costs of your appraisal(s), the cost of your credit report, and title company settlement costs.
In general, when comparing Good Faith Estimates against each other, you should ignore whatever third-party fees are listed. This is because third-party fees are often fixed-cost items which cost the same no matter which bank you ultimately work with.
Your appraisal costs what it costs; your credit report costs what it costs; and your choice of lenders won't affect that.
That said, one of the rare times that third-party costs come into play is with respect to the HARP loan; or via the FHA Streamline Refinance and VA Streamline Refinance. These three programs often waive the need for a home appraisal. Some lenders, however, may insist on performing one, which can affect costs.
Be sure to ask your lender whether an appraisal will be required for your loan.
According to Bankrate.com., mortgage closing costs rose 6 percent in 2014. In percentage terms, the increase is somewhat modest. In terms of dollars, however, the increase is somewhat large -- especially if you live in high closing cost states such as Texas, New York, and Wisconsin.
As a borrower, you have three options for how you'll pay closing costs to your bank.
Each method has its advantages.
When you pay your costs with cash at closing, you often get access to the lowest combination of mortgage rate and loan size. Because your mortgage rate is reduced, you'll pay less interest to your lender over the term of the loan,whether it's a 30-year fixed, 15-year fixed, or something else.
When you opt to "roll your costs" into your loan, the funds of your bank account are not used to help close your mortgage. For households building an emergency cash reserve, or for families wanting to hold bank account balances high, rolling your costs can be sensible.
Lastly, you can choose to waive your closing costs altogether. You can do this using a zero-closing cost mortgage.
Zero-closing cost mortgages are exactly what they sound like -- they are mortgages for which the homeowner pays absolutely no closing costs. With a zero-closing cost mortgage, nothing is added to your loan balance, and nothing is "hidden" in the figures.
All fees in a zero-closing cost loan are paid by the lender. None are paid by you. In exchange for paying your costs, the bank will ask you to accept a slightly higher mortgage rate than the current mortgage rate. The increase is typically 25 basis points (0.25%).
As an illustration of how this works, let's say a homeowner in Loudoun County, Virginia wants to refinance at the local jumbo conforming loan limit of $625,500. In this example, rolling closing costs into the loan cannot be not an option because the new loan size would exceed the maximum allowable loan size.
The homeowner opts for a zero-closing cost mortgage instead. Assuming today's mortgage rates are 4.00%, the homeowners would get a rate near 4.25% from his lender and, in return, closing costs would be waived.
Zero-closing cost mortgages can be used with purchase loans and for a refinance.
With closing costs rising nationwide, taking a zero-closing cost loan can be economically-savvy. You instantly reach "break-even" because there are no costs to recoup; and you get a great, low rate, too.
Compare today's live mortgage rates now. Rates are available at online at no cost, with no social security number required to get started, and with no obligation to proceed.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.