Mortgage Closing Cost -- Don't be Confused, How to Avoid the "No Closing Cost" Scams!

Mortgage closing cost can become very confusing. With many claiming no closing cost mortgage you need to know the truth. Understand exactly what a home closing cost includes and more. Avoid the scams..

You and I both know that money does not grow on trees. Or does it??

Some lenders try to say this when it comes to a home closing cost. I know you've heard the advertisements, "no closing cost mortgage" or no closing cost home loan.

Now think about this for a moment. Can such a thing really exists? Would a lender really help me out and not charge me any mortgage closing cost? Yea, right!! Guess again!! Although the lenders may be the ones who thought up this idea, mortgage brokers have certainly used it to their advantage.

• What are the typical closing costs
• How a no closing cost mortgage works
• Are closing costs tax deductible
• Use a closing cost estimator
• How to estimate closing costs

Plus I'm going to help you find ways to get your mortgage closing cost paid by someone other than yourself. Since after reading in this module you'll see for yourself that the no closing cost mortgage is a myth, you may want to know this info.

Be sure to read the page on average closing costs also.

WHAT ARE THE TYPICAL CLOSING COSTS

Just below, I'm including a screen shot of the top of a good faith estimate (GFE) to help you understand the typical closing costs for a mortgage. This shows section 800 of the GFE.

I'll be referring to it by line number.

Please study over this section and notice that lines 801-812 all have descriptions and figures on them. These are the typical mortgage closing cost.

You'll notice there is an origination fee on line 801, discount on line 802 and so forth. The amounts may vary depending on the size of the mortgage of course.

Here's a line by line breakdown:

801 Loan Origination, the loan officer gets a percentage of this
802 Loan Discount, this is used to buy down the interest rate
803 Appraisal Fee, normally you pay this outside of closing directly to the appraiser
804 Credit Report, sometimes you may pay for this before the mortgage process begins
805 Lenders Inspection Fee, some lenders may require a property inspection
808 Mortgage Broker Fee, the broker you're dealing with may put their fee here
809 Tax Related Service Fee, sometimes a fee will show up here to pay the local government
810 Processing Fee, this charge is for doing the paper work and is paid to the bank or broker
811 Underwriting Fee, here is the fee paid to the lender for their underwriting department
812 Wire Transfer Fee, depending on the lender, some charge for wiring the funds to your title company

Now in this example, notice the fees on the lines that do not have a number. This is where you will find other mortgage closing cost that may or may not have a place for them in the lines above.

Let me explain, the IFC Admin Fee in this example could have been put under line 808 but it was not for some reason. The next line has a combination of fees for the lender. The fees are all lumped together because this is a brokered loan. Line 809 and 811 are included here plus a flood certification. I'm not sure what the "Q" is here but I suspect it's a junk fee added on by the broker.

HOW A NO MORTGAGE CLOSING COST WORKS

Have you every heard the old saying "If it's too good to be true it usually is?" A true "No Mortgage Closing Cost" fits into that saying.

Stop and think about this, every business has cost involved to do business. If they do not cover these costs in the normal course of business, they would not be able to keep their doors open. Simply put, no profits, no business!

Advertisements today lead you to believe there's no mortgage closing cost if you deal with them. There are costs and I just showed them to you on the GFE just above. These are minimal costs on a small mortgage.

If you get a GFE with no numbers on the lines I'm showing you here, then I can guarantee you that your interest rate will be higher than normal. The lender and broker have to be paid to do a loan for you or neither would be around for very long.

So it works this way. either you pay the closing cost now or you pay it over time in a higher interest rate. Frankly, it's going to be much cheaper for you by paying them in the beginning. This really makes sense when your a first time home buyer and plan to stay in your new home for least 5-7 years.

Use this handy calculator to figure this out. Closing Costs Calculator

In most cases it's always to your advantage to pay points (part of your closing cost) than take a higher interest rate and not pay any points.

ARE CLOSING COSTS TAX DEDUCTIBLE

Certain closing cost are tax deductible. I'm not going into alot of discussion on this since I'm not a tax professional.

I will say this, keep a copy of your final closing statement (HUD-1) handy for when you file taxes the year after you buy your house.

Whatever you save on taxes is better in your pocket than Uncle Sam's! A penny saved is a penny earned as Benjamin Franklin once said. Only this will translate into dollars not just pennies.

USE A CLOSING COST ESTIMATOR

The average mortgage closing cost on a home mortgage range from 3%-4%. This varies of course depending on what state you live in. Some states require lawyers to handle your real estate closing and they of course have to get their part. These greedy little pups get paid to do nothing more than slow things down in my mind, but never the less, it becomes a part of your mortgage closing cost.

Below is a link for a closing cost estimator. Play around with it some and see if it helps you out. This will open into a new window.

Be sure to come back after you're done to continue with our subject here.

Closing Cost Estimator

HOW TO ESTIMATE CLOSING COSTS

Once again, this can vary depending on your location. Using the calculator link just above should help you out. Or read the page on How to Estimate Closing Costs.

AVOID UNNECESSARY CLOSING COSTS

Unfortunately, you should watch for unnecessary closing costs. You can learn how to avoid these by reading the page on How to Avoid Unnecessary Closing Costs.

FHA CLOSING COSTS ARE UNIQUE

FHA home loans are unique in how they work your closing costs. Be sure to read FHA Closing Costs to find out how.

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