Preparing Yourself to Submit An Application

If you are buying a home, know how much of a down payment you intend to make. If you are refinancing a home, get a sense of what your home is currently worth and what loan-to-value your loan will represent. This won’t have anything to do with the interest rate you secure, but it will be information the loan officer will need to estimate closing costs.

Think about how much money you want to take out of your pocket to apply to your non-recurring closing costs.

1. If you are buying a home, there are four ways to cover your closing costs. First, you can pay them out of pocket. Second, you can negotiate a agreement with the seller so he/she pays all or a portion of them. Third, you can accept a premium interest rate and use the accompanying rebate to cover them.

There’s a fourth possibility here that will depend on the real estate agent you’re working with. In some states real estate agents are allowed to credit a portion of their commission to cover buying closing costs. In those states where the practice is illegal, real estate agents can agree to reduce their commission, passing the savings on to the seller who, in turn, agrees to pass it along to the buyer.

2. If you are refinancing a home, you have similar options. You can pay them out of pocket, accept a premium interest rate and use the rebate to cover them, or you can finance them adding them to your mortgage balance. If you agree to accept a premium rate, you’ll want to make sure that you control size of the rebate because everything beyond what’s needed to cover your non-recurring closing costs will be pocketed by the broker as an additional profit unless you make arrangements to have that excess distributed to you in the form of a cashier’s check at closing. If you decide to add your closing costs to your mortgage balance, first understand that your payments will be higher because you will be financing a larger mortgage. Secondly, it's to your advantage to make sure more isn't being added to your mortgage balance than is absolutely necessary.