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Can You Avoid Paying Mortgage Closing Costs?

A house party takes place on the outdoor patio of a home that the owners closed on after paying their mortgage closing costs.

What Are Mortgage Closing Costs?

Mortgage closing costs consist of all the additional costs that homebuyers have to pay as they prepare to close on their home. There are two types of mortgage closings costs:

  • Nonrecurring closing costs
  • Recurring closing costs

Nonrecurring Closing Costs

Nonrecurring mortgage closing costs include all one-time fees that buyers pay only once the loan funds. These fees can include title insurance, escrow fees, appraisal fees, lender underwriting, and document preparation.

These are some examples of standard nonrecurring closing costs include:

  • Escrow fees
  • Title Insurance fee
  • Appraisal fee
  • Underwriting fee
  • Notary fee
  • Recording fee
  • Transfer taxes
  • Credit report acquisition fees
  • Mortgage origination fees
  • Processing fees

The majority of these fees exist for all loans and are typically third party vendors. Lenders usually charge borrowers small fees for underwriting and document preparation as well.

Recurring Closing Costs

Recurring mortgage closing costs include any fees that will recur after your home’s loan closes. These costs can refer to initial deposits for impound accounts, property taxes, insurance, and ongoing expenses in the future.

Examples of expected recurring closing costs include:

  • Prepaid interest
  • Property taxes
  • Hazard insurance
  • HOA dues

The majority of current homeowners choose to pay their property taxes and homeowner’s insurance each month, along with mortgage payments. This portion of the monthly payment is placed in a separate account held by the lender. It can be called an “impound account” or “escrow account.”

An Escrow Account is specifically for funds to be held and dispersed for future payment. The funds saved in an escrow account are used to pay for homeowner’s property taxes and insurance premiums. These accounts are typically funded each month whenever a borrower makes a mortgage payment.

Escrow accounts are usually only required if a buyer is putting less than 20% down and is always necessary to use an FHA loan.

Should You Pay Discount Points?

Discount points can “buy down” an interest rate, affecting the total amount of closing costs. At JVM, we don’t recommend discount points for a few reasons.

  1. Too Little Bang for the Buck. When using points, borrowers typically only get about a ¼ percent improvement in their rate for buying a discount point.
  2. Changing Rates, Equity, and Life Events. No matter how long people expect to keep their loans, we are always amazed by how soon they refinance. People refinance because:
    1. Rates fall sooner than expected.
    2. The equity in their home increases and they want to cash out and get rid of their mortgage insurance.
    3. Life happens. People get new jobs, families grow, and housing needs change.

Questions About Your Closing Costs?

Mortgage closing costs can vary from state to state and are also dependent on the property type you are purchasing. Closing costs accrue from lenders and third parties (escrow) that are involved in your loan transaction. It can be confusing at first to understand your closing cost breakdown. Still, buyers usually expect to pay closing costs between 2% and 3% of their home’s purchase price (depending on price, discount points, transfer taxes, and other factors).

If you have additional questions about your closing costs, JVM has some of the best Closing Specialists in the business who will provide a precise breakdown of all closing costs and prepaid items. To learn more about closing costs, your qualification, or to get pre-approved today – contact our team! We are available 7 days a week by email at jvmteam@jvmlending.com or by phone at (855) 855-4491. 

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167