The process of securing a home loan can be confusing and
daunting, especially when it comes to the laundry list of fees
associated with your mortgage. It can be very difficult to
understand all the fees and
and whether or not you're being overcharged.
Shopping around for the lowest closing costs could save you
thousands -- money that could be spent on your new home instead of
on your loan. Here are 5 strategies to help you shop for the lowest
closing costs in order to avoid sticker shock at the closing
5 ways to save
No. 1: Shop around.Getting quotes from several
is the number one piece of advice when it comes to mortgage
shopping. Although lenders don't have to provide an estimate before
you apply for the loan, you should be able to find lenders who are
willing to provide some ballpark figures. Try to get at least three
estimates from local lenders. Speaking to local lenders is
extremely important, especially when it comes to closing costs.
No. 2: Know your locale. Location is very important when
it comes understanding the closing costs associated with your
According to the Federal Reserve
, a general rule of thumb is to expect closing costs to be
roughly 3 percent of your home's price. However, in certain
high-tax areas of the country, closing costs can be closer to 5
or 6 percent of the home price.
No. 3: Don't pay for a lower rate. Homebuyers have the
option to pay more points at closing in exchange for a lower
interest rate. However, experts say paying points isn't really
worth it when
are already low. "I would suggest not buying down an interest
rate," says Mark Hanley, a mortgage officer in Austin, Texas.
"Paying upfront discount points in today's market seems
unnecessary as rates are really low already."
No. 4: Spot red flags. Now that you have a list of
lenders, it's time to look at the fees they charge. Take notice
of estimates that are particularly higher or lower than the rest.
If one lender is charging significantly more for a third-party
fee than the others, ask about it.
"If one lender is not disclosing a fee that another
lender is, ask why," says Hanley. "I have seen competing bids
where lenders purposely lowball a tax payment estimate in order
to look like their estimate carries an overall lower
Fees charged by the lender also can be negotiated. The
best way to know what's negotiable is to ask the lender directly.
Also look for "junk" fees, which are typically listed as
"warehousing fees" or "processing fees" and are sometimes a way
for unscrupulous lenders to increase their bottom line. "These
are easy to spot because every lender doesn't charge them, so
they stick out on estimates," says Lynda Conway, a real estate
agent in Austin, Texas.
No. 5: Shop around for homeowner's insurance. Moira
Vahey, spokesperson for the Consumer Financial Protection Bureau
(CFPB), says even though the CFPB recently issued rules that
"provide consumers with options to avoid costly force-placed
insurance," the best way to avoid pricier insurance is to shop
around. It'll reduce your closing costs and save you money
long-term on your insurance premiums.
Look for new or added fees
Three days after submitting your loan application, your
mortgage lender is required to provide you with a "good faith
estimate" (GFE) of your expected fees and closing costs. You also
should request a fees worksheet that breaks down the closing
costs even further. "The GFE has a way of hiding fees by bundling
several of them together into one fee," says Hanley.
If the fees have changed (the fees on your GFE aren't set
in stone), ask your lender for an explanation. The GFE will tell
you which fees could change prior to settlement and the maximum
amount by which they are allowed to change.
Do a final check
At least one day before closing, request a copy of your
HUD-1 settlement statement from your lender. The HUD-1 is the
final statement of fees, so compare it to your GFE to make sure
the fees and amounts haven't changed significantly.
Finally, if you do notice new or significantly higher
closing costs, don't be afraid to ask about them. The CFPB
advises homebuyers never to sign papers you don't fully
understand. Lastly, consult with a real estate attorney about
your options should you decide to walk away from the loan.