If you've ever gone through the mortgage process, you know about closing costs. Most likely you were given a list of costs associated with the mortgage and told to either bring the money to closing or roll the costs into your mortgage. But, if this is your first mortgage, you're still getting used to the concept of paying more money, beyond your down payment. Usually, closing costs are paid by the person purchasing the home, but with some mortgages (VA for example) the seller can pay closing costs. A little-known fact is that a big part of costs and fees actually go to third parties who process the mortgage, as well as local governments as taxes. The money doesn't go to the mortgage company.
Most people take closing costs and fees for granted and just pay what they are told. They don't question the mortgage or title company about the costs associated with a mortgage closing. That's too bad, because they should.
As an informed mortgage customer, you should make your mortgage broker or banker walk you through each cost, and explain in detail what you are paying. The bottom line is that you don't want to be surprised at the last moment. Imagine getting a call from your mortgage banker the day of your closing with a message that your closing costs are $1,200 more than you thought. And the only explanation is that the title company made a mistake. Chances are you may have to reschedule your closing to get the money together for the difference, or have your mortgage adjusted to have the amount rolled in.
To avoid a situation like this, it's a good idea to know exactly what the costs and fees are, how they are calculated, and why you (or the seller) have to pay them. Here's a breakdown of the most common closing costs and fees with a rough estimate of average cost:
Closing costs and fees are part of a mortgage, and knowing what they are and how much they should be is a good idea. This will put you in a position to challenge a cost or fee that seems exorbitant. Even if everything is correct, you have the right to ask, and your mortgage company has the duty to explain -- in detail -- each and every closing cost and fee.
Diane Tuneman Writer