Understanding Colorado Mortgage Closing Costs
Closing costs are costs associated with getting a mortgage. They can be broken up into two categories:
Prepaids - which are costs associated with setting up your new loan.
- Some examples:
- Prepaid interest. The daily interest cost of your new mortgage multiplied
by the number of day remaining in the month you are scheduled to close.
- Hazard Insurance premium (also known as homeowner's insurance). You'll
prepay for the first year of insurance for your new home.
- Prepaid interest. The daily interest cost of your new mortgage multiplied
by the number of day remaining in the month you are scheduled to close.
Closing Costs - which are costs associated with paying for the service of obtaining a mortgage.
- Some examples:
- Origination fee. Typically 1% of the loan, this fee is a source of revenue to the company doing the loan and the mortgage consultant who is helping you obtain financing.
- Appraisal. An appraisal is required (as noted above in the "a
mortgage is like a table section") to verify the value of the home
for the lender. You can expect to spend between $325 and $375 for an
appraisal depending on the type of mortgage you'll be taking out. In
some cases the cost of an appraisal is less - in some cases more. Your
mortgage consultant will tell you how much you can expect to spend on
your appraisal. This fee is a cost to the transaction, not revenue to
the lender.
- Credit report. Your credit is a very important of the process of obtaining a mortgage - there is a cost to pulling your credit - and having any inaccuracies fixed. A basic credit report will cost you $9. If there are numerous items to be corrected you might spend as much as $65. This fee is a cost to the transaction.
The complete list of prepaids and closing costs.
How to avoid paying closing costs out of your pocket:
You could ask the seller to pay your closing costs. This would happen as part of the negotiation process associated with buying your new home.
You could ask your lender to price your closing costs into the rate. How does this work?
- Just as you can buy down your interest rate by paying discount points,
you can premium price closing costs by paying a higher interest rate. This
generates discount points back into the transaction to pay for closing costs.
- Keep in mind that with a higher interest rate comes a higher payment (higher
principal and Interest).
- Why would you do this?
- Sometimes, coming up with the down payment is all that is possible
for a buyer. In this case, buying up the interest rate might be a way
to buy a home.
- Sometimes the money is worth more in your savings or investment account,
than the savings that you would realize (lower monthly payment) by paying
the closing costs out of your pocket.
- Sometimes, coming up with the down payment is all that is possible
for a buyer. In this case, buying up the interest rate might be a way
to buy a home.
- Talk with your mortgage consultant for help in evaluating whether this option makes sense for your situation.
You could also ask your mortgage consultant for a home loan where closing costs are included in the principal balance of your new loan.
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