How To Beat (Or At Least Minimize) The Closing Costs On Your Home Mortgage

Understanding the HUD-1

What are Closing Costs??

Closing costs can be one of the most difficult parts of the home mortgage experience. You are seldom prepared for how much they will be and even worse, you feel powerless to control them. This doesn't have to be. With a little knowledge you can keep your closing costs to a minimum and have a pleasant closing.

The definition of home mortgage closing costs are the fees and everything that you have to pay when you finalize your home mortgage or buy a piece of land with an escrow agent and/or attorney. These costs range from realtor commissions, county and escrow company fees, escrow account prepayments, first month's interest on the mortage, termite or pest control, rent the home if the seller can't move out right after closing, home mortgage title insurance and probably 5 - 10 other miscellaneous charges. Basically, anything and everything connected to the sale of the home and completion of your loan package for your home mortgage is a closing cost.

To help you know what you are paying, the Department of Housing and Urban Development (also know as HUD) has mandated a uniform form for every sale or home mortgage called a HUD-1. I strongly recommend that you learn how to read this form. You will quickly be able to tell how much you are paying for closing costs and ultimately for your home mortgage. You are allowed to ask questions and dispute charges on the HUD-1. However, if you do dispute a charge and changes are necessary, then your home mortgage company will have to re-approve your loan, which could potentially delay your close on the property. You should ask to see the HUD WELL BEFORE the closing. This will make the closing much easier for you and quicker for all.

This article will briefly overview major closing costs associated with sales and home mortgages.

The federal government has decided that there are 8 categories of closing costs for a home mortgage. If this seems a little overwhelming, don't worry. As they say with any large task, "don't eat the elephant in one bite, take many bites." You should take HUD-1 reading one step at a time. Bottomline, reading the HUD carefully will give you a better understanding of the whole closing and what money you will be required to bring to the closing.

The first category of the HUD is government costs. specifically, property taxes. You will get a discount on the price of the property for the part of the year that the seller should pay taxes. For example if you're closing on May 31, you will only be responsible to pay 66.7% of the year's property taxes. The seller will pay the other 33%. This assumes that the county where your home will be located requires tax payments starting on October 1.

The next government category is Recording Costs. Your county charges you a fee to officially record your sale and home mortgage into the public record. This is how you can actually look up the latest selling price on any property. The next category is the agents' commission. This is normally negotiated and paid by the seller. In many states it's 6% of the sale price of the home. The 6% will be evenly split between buyer and seller's realtors. Next after the commission comes the fees of the home mortgage broker and the home mortgage lender (the bank). The law requires that before closing you are provided with a summary of these fees. This is called a Good Faith Estimate. Some of these fees are actually paying home mortgage interest to the end of the month and home insurance to the end of the year. The escrow agent won't let you close until all fees are paid in full. Title company fees are set for the title company who will ensure that the title to your home is free and clear of any encumberances (someone with a lien on your home or land). Since it is your right to choose your title company, you should call around your area to find the best rates. But don't just go for the cheapest title company. I recommend that you ask for recommendations. Ask people in homes nearby yours to tell you about their closing experiences. If they had good experiences, I recommend you strongly consider that title company. Sometimes large home mortgage lenders have special deals worked for you. Finally, there are miscellaneous other people to pay, like the surveyor and pest inspection. These you can shop for, or have someone choose for you.

Buying a house with a home mortgage is a big deal. By knowing all this in general, you will be less likely to be intimidated at closing. If knowledge is power, than the ability to read a HUD is a valuable talent. The HUD will unveil all of the half-truths to the light of day, letting you see what you are really paying with that home mortgage. With a little practice, it will come with ease. Then you will truly be in control of your own closing.