Avoiding Excessive Mortgage Closing Costs

Buying a home is something that most people don’t do too often. Usually people are only involved in real estate transactions once or maybe twice in a lifetime, so that most of them are not familiar with the whole process. In real estate transactions, there are mountains of papers to sign with plenty of unfamiliar terms. People also need to deal with mortgage brokers, real estate agents, and others, who just want to get everything done quickly so that they can get paid. They just smile and tell home buyers where to sign without explaining everything in detail. People who have never been involved in real estate transactions before can easily lose track of what they are paying for. The boredom from signing mountains of papers makes it even easier for them to lose track of how much they are spending on everything.


The mortgage is not the only thing that people need to pay. There are also lots of other expenses that are categorized as mortgage “closing costs.” Homebuyers should pay a close attention to everything that is included in the closing costs because by doing so, they may be able to save a lot of money. Closing costs are actually the sum of all potential costs that occur during the process of purchasing real estate through mortgage. Closing costs can be grouped into two categories as recurring and non-recurring.

Recurring costs are paid not only at the closing of the mortgage, but also on monthly basis for the life of the loan. Recurring costs include real estate taxes, homeowners insurance, and private mortgage insurance (for homebuyers with less than 20% down payment). All these costs must first be paid in advance at the mortgage closing, so that the funds will be readily available to cover the following year’s obligations. In some cases, homeowners also have to prepay interest to cover their first few days or weeks.

Non-recurring costs are also paid at the mortgage‘s closing. Non-recurring costs may include application fee, a series of loan fees, a broker’s service fee (for homeowners who use the service of a mortgage broker), home appraisal fees, Federal Housing Administration fees, and more. There is no way that homebuyers can completely avoid unnecessary mortgage fees. But to minimize them, homebuyers can look out for excessive fees that are charged for things like application fee, underwriting fee, mortgage rate lock fee, loan processing fee, and broker rebate. Some lenders realize that homebuyers are overwhelmed by the mortgage closing fees, and they are offering what is called “all-in-one” flat-rate fees with all closing costs included.

In general, the amount of mortgage closing costs that homeowners have to pay is from 3 to 5 percent of the property price. To see the closing costs in detail, homeowners have the right to see the HUD-1 document 24 hours before the mortgage‘s closing.