Five tips for keeping closing costs down
By BankingMyWay.com Staff
Thinking of refinancing? Refinancing may make sense, given today’s historically low rates. But refinancing costs money (normally around 2% to 3% of the total loan amount), including fees for an appraisal, loan origination, title insurance and much more. Closing costs can reduce the benefits of refinancing, so it's important to keep them as low as possible.
Here are five tips that can help you do just that.
1. Compare offers: By law, lenders must provide you with a good-faith estimate of their closing costs. Compare estimates from three or more lenders and use that information to negotiate a lower fee. To help narrow the field, compare the interest rate offered on a loan to its annual percentage rate (APR). The APR calculates how much interest you'll pay per year and includes any hidden fees or other costs. It's a better representation of the true costs of a loan. For instance, Webster Bank's (WBS) in Connecticut offers 5.0% interest with a 5.046% APR, reflecting low closing costs. The same is true for Tier One's (TONE) offer in Kansas, of 5.5% interest with a 5.537% APR. Capital One's (COF) offer in New York sports 5.0% interest with 5.3% APR, suggesting high closing costs.
2. Look out for lowballs: When comparing closing-cost estimates, be suspicious of figures that seem especially low. They may include unrealistically small assumptions about certain costs. "In particular, look closely at Line 901, the first month's interest that you pay in advance," says Marc Savitt, president of the National Association of Mortgage Brokers. "A lot of originators will account for only a few days of interest -- so if you close at the beginning of the month, that number can go up in a hurry."
3. Recycle lenders: Using the same lender you worked with on your first mortgage can save on paperwork costs. In many cases, documents covering items such as title insurance can be refiled rather than created from scratch, saving up to 70% on the filing fee.
4. Ask questions: "The only dumb question is the one you don't ask," says Savitt. If something looks questionable on your good-faith estimate or you don't understand a particular fee, check it out. It's a lot easier to sort out such issues before you sit down to sign the big stack of papers.
5. Walk away: When it comes time to close your loan, closing costs may have changed from the original estimate. If your lender or broker can't justify the change in fees, don't be afraid to walk away. Even if you do sign, you have three days to cool off and reconsider before the loan becomes binding.
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