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How to Save on Mortgage Costs, Including Refinances.

Posted on | October 6, 2009 |

Closing costs for a home range from 3-6% on average, and most lenders require at least and additional 5% down payment.

My wife and I have bought two houses, sold one house and refinanced once. Here’s how we’ve saved on our closing costs, mortgage and more - and you can too!

Have the seller pay the closing costs

Ask the seller to pay some or even all of your closing costs. You can even roll the cost into the selling price, and have it included in your mortgage. That way the seller isn’t really paying for it. This is helpful if you’re short on cash for the closing, but you do end up borrowing more in the long run. Also, Freddie Mac and Fannie Mae limit the amount you can roll into the mortgage to 6% of the purchase price, and only if you’re putting at least 10% down. Similarly, FHA allows up op 6% and the VA allows up to 4%.

Shop mortgage terms.

Don’t just accept a mortgage from the bank you keep your savings or checking account with. Shop around. Get quotes from at least 3 or 4 lenders, or 2 lenders and a mortgage broker. You’ll want to get at least 2 lender quotes on your own to verify that the mortgage broker isn’t piling on excessive fees. In fact, if you just get 2 quotes from local banks you should almost certainly get a better deal through the broker, otherwise the broker isn’t really getting you anything. After all, the whole point of a broker is that he has the connections and does the leg work to get you a better deal than you could on your own.

When you get quotes from lenders on your own, be sure to get a copy of the
Good Faith Estimate, or if you’re refinancing, a copy of the HUD-1 form.

Eliminate the PMI.

Personal mortgage insurance is usually required if you have less than a 20%down payment, but not always. I shopped about 4 lenders when we bought our last house, and I ended up going with a local bank (that I was not yet a member of) because they had no PMI requirement, offered a quarter percent of my rate if I opened an account and signed up with direct deposit. The interest rate is horrible, of course, but I use ING and HSBC online for savings anyway. Alternatively, if you’re in a high tax bracket, ask the lender if you can pay a single PMI premium up-front, and roll that into the loan. You’ll be borrowing more money over all, but you’ll get to deduct more on your taxes, so it may offset the PMI premium.

Shop around for title insurance.

Many lenders will try to automatically direct you to their affiliated title insurance provider, but you can often times shop around for a cheaper one on your own. According to a recent Kiplinger article, as much as 80% of your title insurance fee goes to the commission of the title insurance agent. That’s a hefty discount if you go it alone!

Pay more (often).

Go with a Bi-Weekly Mortgage Payment Plan if you can - and if there’s no additional fee. Another reason I went with my local bank is that they offered a Bi-Weekly mortgage payment plan for free as a perk to get my business! This saves me years off my time to pay off my mortgage and thousands in interest. I can even make extra payments above that, if I want.

If the lender wants a fee - any fee - to enroll you in a Bi-Weekly Mortgage Payment Plan, opt out. As long as there are no pre-payment penalties, you can still make an extra payment every year on your own, it just takes a little extra discipline.

There are a host of other tips out there, and I’m sure some readers have a few of their own. Maybe if we’re lucky, they’ll leave a comment about one. ;-)

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