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 One
of the major expenses of a mortgage,
refinancing or second mortgage is the
"Closing Costs" associated with the
mortgage. Do not be fooled by
advertisements that declare that
there are "No Closing Costs". Every
mortgage loan or refinancing has
several costs involving verification
of facts, credit checks, legal
documents and government fees that
have to be paid before the borrower
is provided with the proceeds from
the loan. These costs have to be paid
by either the seller of the property
or the buyer-borrower. If the seller
pays some of the cost then the rest
have to be paid by the borrower. If
the loan is constructed to have "no
closing costs", then the cost of the
items listed above are paid by the
borrower by adding them to the
mortgage loan by INCREASING the
interest rate on the loan. The higher
interest rate causes the borrower to
make higher monthly payments. Part of
the higher monthly payments then go
to pay those closing costs, so you
can see that the closing costs are
paid one way or another. Another way
of paying the closing costs is to
have them added to the PRINCIPAL of
the loan. This means you do not have
to pay a higher interest rate on the
loan, but you have to finance the
closing costs since you are adding
them to the principal amount of the
loan which means you are paying
interest on that extra principal. The
normal way closing costs are paid is
that they are deducted from the
principal amount of the loan. In some
cases this means that the borrower
will have to put up the difference
between what the seller of the
property gets and the proceeds of the
mortgage after all costs are taken
out of the loan amount. The borrower
usually brings a check to the closing
for the amount of the difference
between what the seller gets and the
proceeds of the loan.
You are permitted to know what the
approximate amount of your individual
closing costs will be PRIOR to
closing. Always ask for a Good Faith
Estimate HUD Statement from either
the Lender or the Mortgage Broker
before you agree to a closing on your
loan.
In an attempt to help understand just
what you can expect when it comes to
closing costs, we have compiled a
list with the typical areas that are
included in closing costs for
purchase mortgages, refinancing and
home equity loans.
Click here to view the list.
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