What you need to know about closing costs

Closing costs are fees that are charged by not only the lender, but also third parties like appraisers and credit bureaus, who you have to pay when you close on a mortgage loan. Closing costs do change from year to year. They change from state to state and from deal to deal. Whenever you close the closing costs are unique to your deal.

Closing costs this year are about 7% lower than the previous year. On a $200,000 loan, they average about $1, 847. Keep in mind that we excluded certain costs, mainly title insurance and taxes because those costs vary so much from house to house. Depending on the state you're in, closing costs can be high or low. A lot of it really boils down to the cost of living in that state.

In this year's survey, the highest cost states were in Hawaii, New Jersey and Connecticut. The three lowest were Ohio, Idaho and Wyoming.

Closing costs do tend to vary by the size of the loan. The bigger the loan, the more your closing costs are, up to a certain point. You can control your closing costs by shopping around, applying to at least 2 to 3 mortgage lenders.

In addition to that, there are a couple of fees that you can shop that are third-party fees. A third-party fee is a fee that is not charged directly by the lender. So, we are talking about things like the credit report, the appraisal, flood certification and title insurance. There are some fees that are unavoidable. The appraisal is one of them. The lender will insist on an appraisal; and you can't avoid taxes either.

The origination fee is a fee that is charged directly by the lender. They may call it a processing fee. There are times when you can avoid origination fees by accepting a higher interest rate, and these are called "no closing costs loans."

The main benefits of shopping around for a mortgage are, you can get a better mortgage rate because one lender might have a better rate than the other, and of course, one lender might have lower fees than the others.

Autumn 2015 brings new changes to the closing documents. For example, if you apply for a  mortgage, for years you used to get a Good Faith Estimate. Starting in October 2015, that becomes the loan estimate. It's a simpler document that makes it easier to compare loan offers.

In addition, at the end of the process, you'll get a different document. It used to be that you got a very complicated document called the "Hud 1 Statement." That's going to be replaced by something called the closing disclosure.  And it's going to be easier to compare the fees that you pay at closing with the fees that were in the loan estimates.

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