There’s a lot of little fees in a borrower’s closing costs. These are categorized as lender costs, third-party fees, state & govt. fees, and prepaid items.
However the most expensive closing costs are:
\u2022 Origination fee (0-2% of loan amount) \u2014 Sometimes includes other lender or broker fees to arrange the loan
\u2022 Points or “discount fee” (0-1.5% of loan amount) \u2014 Optional fee paid to bring your interest rate down
\u2022 Title insurance ($300-$2,500+) \u2014 Fee you pay to confirm the current owner(s), liens, encumbrances, and protects the lender and buyer against defects in transferring ownership
\u2022 Escrow fees ($350-$1,000+) \u2014 Fees paid to a licensed third-party “escrow company” that handles funds and facilitates the real estate transaction
\u2022 Home appraisal ($500-$1,000+) \u2014 Fee to determine if the home’s value for a purchase or refinance transaction
\u2022 Prepaids; taxes and insurance ($1,000-$4,500+) \u2014 Typically the borrower will pay from six- to nine-months of property taxes and a full year of homeowners insurance on a purchase loan. Refinances may have lower upfront requirements. <\/p>\n\n\n\n

Any tips to avoid paying closing costs?<\/strong>
The first way to avoid paying for closing costs is to request the seller to pay them. This usually works best in a buyers’ market (when the seller’s home has not received many offers) and is known as a “seller concession”. <\/p>\n\n\n\n

The second method to avoid paying closing costs is by applying for a “no closing cost mortgage” with a mortgage broker or lender. In most cases, this means you’re getting a higher interest rate and will pay significantly more interest over the life of your loan than if you paid closing costs and got a lower rate. <\/p>\n\n\n\n

The third way is not widely available on purchase loans but some lenders will allow you to include your closing costs into the new loan amount. If in a refinance it can be included. To illustrate, if you get a $425,000 mortgage and have $7,200 in closing costs, you might be offered a new loan of $432,200 loan and not pay any closing costs. This way you keep the low rate and add just $7,200. <\/p>\n\n\n\n

A.) No closing costs with higher rate
\nIf you had a $425,000 loan at 5.00% your payment is $2,281\/month and interest over the life of the loan is $396,337.<\/p>\n\n\n\n

B.) Closing costs bundled into loan at low rate
\nIf you had a $432,200 loan at 4.25% your payment is $2,090\/month and interest paid over the life of loan is $327,668<\/p>\n\n\n\n

It appears scenario B is the clear winner. <\/p>\n\n\n\n