Comparing Closing Costs

Obviously, a great way to compare closing costs is to compare the GFE (Good Faith Estimate) provided by your mortgage originator. Many times it will still be hard to tell who has the best deal. Another good item to pay attention to is the APR (Annual Percentage Rate) on the TIL (Truth in Lending) form. The APR is the percentage cost of the credit for which you are obtaining on a yearly basis. The APR was designed by the federal government to reveal the true total cost of getting a loan.

Items such as title charges, homeowners insurance, and property tax estimates may differ from on broker's GFE to another. However these items would be identical at closing. The most important section to compare is the fees in the section titled "Items payable in connection with the loan"

One fee that most likely will change is the pre paid interest. This amount will change based on the day of the month you close. If you close early in the month you can get an interest credit but your mortgage payment is due on the first of the following month instead of skipping a month of payments.

When looking at a Good Faith Estimate(GFE) to determine and compare closing costs, it is important to pay attention to items that are used to calculate the APR you will see in the Truth in Lending Disclosure. They should be checked in the PFC (Paid Finance Charge) Box to the far right side of the Good Faith Estimate(GFE).

When figuring out your loan cost make sure you take into account the money you have spent on your current mortgage. If you are restarting your term again then you have lost those mortgage payments. Granted your principle has reduced as well but its important to look at all costs when taking a new mortgage.

When comparing closing costs make sure you compare the actual closing costs to each other and not prepaid items. Prepaid items are things such as homeowners insurance, escrow accounts for taxes, insurancs, and mortgage insurance, and prepaid interest. These figures will be the same everywhere at closing, yet may differ on the Good Faith Estimates due to these figures simply being an estimate up front. The actual closing costs on the good faith estimate, even though only an estimate, should be close to the final numbers that will be on your HUD 1, or settlement statement.

When you are ready to close on your home loan, get a copy of the estimated HUD-1 from your Mortgage Consultant, before your appoinment to sign documents. This will allow you to see all fees involved so there won't be any surprises at the end.

Do not focus exclusively on closing costs: You must compare the rate you are receiving and the closing costs you are paying.