Dangers of Closing Costs

by : Chuck Lunsford

Closing costs are an inevitable part of buying or refinancing a home. Closing costs can represent a significant out of pocket expense. If you are involved in stopping foreclosure this becomes problematic as you are likely trying to conserve whatever cash resources you have.

Closing costs are unavoidable for at least one of the parties involved, but there are ways to reduce this expense. Education of the home buying process is necessary and consumers should educate themselves on the closing process and all of the fees involved. They should also learn about potential scams that less scrupulous companies may employ so they can protect themselves. To avoid being victimized, along with obtaining the best deal on closing costs, borrowers should carefully consider the following advice.

Do your homework. Educate yourself on the multitude of options available that reduce closing costs. Learn which are beneficial and which ones just transfer the costs to the loan, which can end up costing more in the long run. With the amount of information available today there is no excuse for being unprepared. Visit your local library, bookstores, search the Internet and read free information from experts in the field. There are forums on the Internet where others like yourself who have been through this left their comments on the experience. This type of information is priceless, and best of all it isn't slanted to selling you anything. The information is out there and consumers should read and digest everything they can. It is also a good idea to do some research on real estate scams and real world examples of mistakes that others have made.

A recent phenomenon gaining popularity is no closing cost loans. They seem like a great idea, but the problem with these types of offers is that in reality the closing costs are simply added to the mortgage and the borrower ends up paying more interest on the loan. In the end the closing costs could end up costing significantly more than if they were paid up front. If there is no money available to pay closing costs up front this option may be beneficial but if it can be avoided do so by all means.

If the real estate market in your area is favorable for it then consider negotiating with the seller to pay all or some of the closing cost themselves. If homes are selling quickly and at market price it may be more difficult to convince the seller to contribute to closing costs as there is a good chance that the house will sell otherwise.

If you find that local real estate promotes a buyers market then you have much more leverage, especially if the seller is having a difficult time selling the house. They may be more willing to negotiate an agreement to help with or pay for all of the closing costs. If you happen to be refinancing this option is unavailable.

One of the largest components in closing costs is title insurance. Many consumers are unaware of what title insurance and do not know that they need it. That is until they see it as one of the costs on the closing documents. Because of this lack of knowledge most consumers have no idea of their right to shop around for title insurance. They simply allow their mortgage broker or real estate agent to take care of this, which can be a big mistake. By shopping around for title insurance consumers can cut $100's or even $1000's from their closing costs.

There are other fees, such as courier fees, notary fees, documentation fee, overnight delivery fee, points, processing fee, and others which may be duplicates of other fees, or which are fees which the originator has marked up to add to it's profit margin. These are the fees, sometimes called hidden fees, which you may overlook or not feel you have the right to question. You do have that right.

There are other options available that can cut closing costs whether you are refinancing or buying a home. A little research can go a long way and if consumers take the time they should be able to find something that suits their needs. We all want to save money, conserve any home equity, and all it takes is a little time to gain some knowledge and make the appropriate decisions.