Whether a person is buying a new home or refinancing a mortgage, he or she will have to pay some closing costs to get a loan. Closing costs may be paid directly or indirectly, but because they're an important and often expensive part of home loans, they're certainly worthy of examination.

The basic function of closing costs is to pay for the wages of all of the individuals who take part in the loan underwriting and evaluation process as well as some of the material costs associated with a loan. However, there are often a few elective costs that are worthy of consideration. For example, when closing on a mortgage, buyers can pay for points to get lower home mortgage rates. Many buyers decide to purchase points, inflating their closing costs but reducing their bank mortgage rates.

While points are expensive -- in a typical arrangement, each point costs one percent of the mortgage -- they can be worth the money in the long run. Lower home mortgage rates make it easier to pay off a loan and, as bank mortgage rates change constantly, buying points is one of the only ways to guarantee a low rate. Points are usually purchased when buying a new home, but they're available when refinancing as well. Buyers should ask loan officers about buying points to get lower bank mortgage rates prior to closing, as this will ensure the proper paperwork is in order to keep the closing on track.

Buyers should also ask their lenders for a breakdown of all of the costs associated with closing. There will be fees for underwriting processing and, depending on the bank, there will likely be other costs for actually processing the loan. A detailed breakdown of fees will provide buyers with peace of mind by eliminating any hidden costs that could complicate the closing.

Closing on a home can be expensive and to provide an incentive for buyers, many banks will offer to cover some of the fees associated with closing. However, in some cases, buyers who completely pay their home closing costs will be able to get lower rates than buyers who let banks foot part of the bill. By getting a breakdown of costs ahead of time and by understanding their options, buyers can make sure that closing cost offers are fair and keep long-term mortgage costs as low as possible.