If you haven't guessed already, there are closing costs when you buy a home. In fact, there are lots of them, many with names that you've never even heard of. There are definite ways to save on closing costs, however. Some of those ways your lender will tell you about. Others you have to ask for.
Recurring Closing Costs Are Nonnegotiable; Nonrecurring Closing Costs Can Be Negotiable.
There are two types of fees when buying a home:
Recurring closing costs are costs that will occur again on the same loan. Recurring closing costs are things like a home insurance policy and property taxes. Your lender will want to see an insurance policy in force when you buy the new home, but you'll also encounter this cost again when your policy comes up for renewal.
Your property taxes and mortgage interest are also recurring costs. You will pay mortgage interest again each month, and you'll also pay property taxes again either once or twice per year, depending on where you live.
These are costs that your lender can't control. Your lender won't provide you with a hazard insurance policy on the home in case of fire or storm; instead, you'll get both the quote and the policy from an insurance agent.
Likewise, your lender has nothing to do with your property taxes. Your property taxes are based upon the value of your home and are set by your local appraisal authority or taxing office.
What your lender does have control over are your interest charges, which are determined by your interest rate, the amount borrowed, and your loan term. These three items are recurring; they will happen again. And again.
Watch the Nonrecurring Fees for Junk Fees.
Nonrecurring closing charges are fees that are associated specifically with the closing of your deal. They will include payments to everyone from the appraiser to the surveyor and anyone else in between who will claim a piece of the action when it comes to your wallet.
Nonrecurring charges are the ones you need to be concerned about. Recurring charges you don't. Nonrecurring charges are those collected by:
The lender The appraiser The credit agency The attorney
The closer or escrow company The home inspector The title agency
Did I leave anyone out? Oh, yeah, I forgot:
Other government agencies, depending on where you live
Tax service companies
Everyone else I missed who might show up on your credit report
So how do you prepare for these closing costs? You need to do a little homework. This book will answer all your questions, but what will happen is that your potential lender will provide you with a list of potential home loan fees in the form of an estimate.
Your lender is required to provide you with an estimate of closing fees within three business days after receipt of your loan application if you submitted your loan application by mail, fax, or online, and immediately if you made the application face-to-face. Your lender provides you with this list of potential charges in good faith. This means that, based on the lender's experience, local customs, and its estimate, your fees will total $X,XXX.
In good faith. Estimate. That's why this is called the Good Faith Estimate of Settlement Charges.
This document is perhaps the one that causes the most problems during the loan approval process. The Good Faith Estimate, or GFE, is the loan officer's best guess as to what charges the buyer will ultimately be asked to pay for at the time of loan closing, and when the final numbers are given to the buyer at the settlement table, they won't exactly match the original estimate.
In addition to recurring and nonrecurring closing fees, the borrower will also be required to bring the down payment (if any) and perhaps verification of any additional cash reserves that a lender might require before issuing a final loan approval.