Closing Costs

Author:  Terri Ewing        Published: August 1, 2008

Closing Costs Defined

Closing costs are fees paid up front when obtaining a mortgage. These are fees like origination, appraisal, title, discount, recording, underwriting, processing, etc.

Closing costs are technically just the fees that go to the originator and any other third party like an appraiser or title company. However, there are other things that need to be paid at closing like days of interest and escrows that will be included in your “cash needed to close” number that technically aren’t closing costs.

Closing costs can be paid different ways. You can pay for them with a check at closing which is most common when you buy your house. You can roll them into your new loan amount and finance them which is most common when refinancing. Or, you can increase your rate and use the money that creates to pay them. This is how companies advertising “no cost” mortgages pay closing costs. But how much were your closing costs and how much did they take for themselves after paying them?

People planning to buy a home, especially first time home buyers, sometimes forget the closing costs. They calculate how much of a down payment they can afford but forget to add in the closing costs. Remember to get both a closing costs estimate and a cash needed to close estimate when buying. People refinancing are sometimes shocked to see their loan amount go up because of the closing costs. To get the lowest rate, you have to either pay them upfront or finance them.

There are always $1,000’s in closing costs whether you are buying or refinancing, so don’t believe the “no cost” or “flat fee” advertisements. Those advertisers simply make up the costs by giving you a much higher rate which is a really bad trade off simply to cover one-time closing costs. See Yield Spread Premium for definition and Yield Spread Premium-The Mortgage Industry’s Dirtiest Secret to learn why allowing the rate to pay the costs is more scam than truth.

Author: Terri Ewing