Understanding Mortgage Paperwork

Posted on: 28 July 2017

If you are a first-time home buyer, you are no doubt a combination of excited and confused. There's so much to do and so much to know! Thankfully, you likely have a great real estate agent to walk you through the process every step of the way. One of the perplexing aspects of buying a home is the closing costs. Here is what you need to know.

What Are Closing Costs?

Buying a home is a legal transaction, and as such, there's a lot of paperwork involved. The title company has their paperwork. There may be a land surveyor involved, ensuring the piece of property you are buying has the right physical legal description. The appraiser doesn't work for free. The deed needs to be recorded at the county clerk of courts. The bank has to process the loan and all the paperwork involved with that.

What do all of these things have in common? They cost money. Everyone has their fees that need to be paid, and someone has to pay them. There is no set amount for closing costs, it's just what everything adds up to in the end. It can range anywhere from 1 to 7-8 percent of the cost of the home. Your lender will usually give you a "Good Faith Estimate" (GFE) so you have some idea of what to expect.

Sometimes the lender will allow you to roll your closing costs into the loan if the numbers crunch right, but then you are paying interest on fees, so it's best to avoid this option. Look for ways to reduce the closing costs instead. Try one of the following:

• Set Your Closing Date For The Last Day Of The Month. By doing this, you won't have to pay interest for the whole month, you will just be paying one day's worth of interest.
• Make Your Offer Contingent On The Seller Paying. Most banks and finance companies allow for this contingency, but have your real estate agent verify it. You may wonder why they would be willing to take on this expense, but if it means getting the "SOLD" sign planted in their front yard, most are happy to. It's also a tax-deductible expense for them at the end of the year, so they aren't really losing anything, and it obviously helps you out.
• Try To Negotiate. With the GFE in hand, which provides an itemized breakdown of who is charging what, you can always check with other lenders to see what they would charge. Some fees are non-negotiable, such as government fees, bit others, like the loan origination fee, the fee the bank charges for giving you a loan to begin with, is totally negotiable.