Save what you can on closing costs

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You haven't bought a home until all the paperwork is signed, the deed is recorded and the cost of finalizing the sale is paid for.

Unfortunately, those closing costs often catch buyers by surprise -- a big, multi-thousand-dollar surprise.

That shouldn't be the case. Federal law requires lenders to give potential customers a good faith estimate of the closing costs early in the process -- long before you are committed to taking out a loan.

We know how hard it can be to find the time to read and think about that estimate with everything else that's going on: finding a house, negotiating a deal, possibly selling an existing house, getting a mortgage, arranging the down payment, packing for the move and so on.

But paying a little attention early in the home-buying process could save a lot of aggravation, and maybe even some money, later on.

Closing costs can be broken down into two main categories, and some of the items in those categories are negotiable, but not always with the people who have to be paid.

Let's start off by looking at what can and cannot be negotiated, and then talk about with whom you can negotiate. To see a complete list of items on a good faith estimate, look at the form you get from your lender -- or potential lenders.

Like a house, the cost of a loan can be negotiated. We're talking here about the fees the lender charges. These are sometimes referred to as the 800 fees because they are the ones in the 800 "section" of the estimate. They usually include a loan origination or broker's fees, and this generally comes in at about 1% of the amount being borrowed. Other lender fees include:

The only way to really know how much room there is for negotiation is to get estimates from two or three different lenders, compare them, and play one off against the other. Some lenders have different names for what they charge. Some also throw in what are referred to as "junk fees," which is just a way to collect extra money from people who don't pay attention.

There is also a 1300 section that covers additional settlement charges. These could, for example, include the cost of a land survey, or an inspection for termites or other pests. Pay special attention to what you are being asked to pay for here.

Remember, however, that the estimate is just that, an estimate. The lender probably will not know the exact amount that will have to be collected for taxes and insurance, for example. Nor will the lender know what the pre-paid interest will be. We'll look at why a little later. But the lender should know what its own in-house costs and fees would be.

Some costs are not negotiable, such as the cost of transferring and recording the deed, and the cost that the title company or real estate attorney charges for processing everything.

There are also a number of fees that have to be paid in advance. You must, for example, pay the interest on the loan for the rest of the month. Interest starts accruing as soon as you sign loan agreement. So if you close on June 8, for example, you will pay the interest on the remaining 22 days of the month. If you close on June 20, then, you will have less interest to pay since there are only 10 days left in the month.

You will pay July's interest when you make your August mortgage payment, and then pay it monthly after that. You will not, however, make a payment in July. That is because one of the differences between renting and buying is when you pay. When you rent, you pay for the month when it begins. When you buy, you pay for the month that just ended.

If you are buying a house, you will need to prepay the first year's insurance when you close. If you are refinancing, you normally have to pay it for the first three months. Some taxes also have to be paid when the loan is closed. The amounts here all depend on where you live, the size and interest rate of the loan, the value of the property, and so on.

Many of these are one-time costs. You do not have to re-record your deed, for example, or have the title researched every year. Some, however, are merely the first payments toward what are going to be continuing costs: property taxes, homeowner's insurance and mortgage insurance, if it's required. These costs are typically included in our monthly mortgage payments.

The lender holds the money in escrow accounts and then pays the bills as they come due. Some of these, especially the property taxes, can vary from year to year, which means that your monthly payment can change from year to year. If you have a fixed-rate loan, however, the principal and interest will remain the same.

Closing costs are part of the "price" of the house, and you can ask the seller to pay all or part of them. Depending upon the housing market and how desperate the owners are to sell, they just might agree to do it. Closing costs are as much a part of the negotiation process as anything else.

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