The Pre-paid Items relate to your taxes and insurance, and simply involve pre-paying a portion of your annual charges.  Obviously your taxes and insurance must be paid and nobody is going to pay them for you in order to save you money.  Even if you do not escrow for your taxes and insurance, you are not reducing your costs, just changing the time of payment.  You will still be paying the money when the annual bill comes due.  In addition, in some circumstances, lenders charge higher rates or fees when tax and insurance payments are not escrowed.  So choosing not to escrow not only fails to avoid the payment, but might even add to your overall costs.

All the other closing costs represent fees charged by the lender/broker, the Title Company, the Government, or other third parties such as surveyors, pest inspectors, appraisers, etc.  It goes without saying that the Government is not going to waive any of their fees to help you save a little money.  And clearly lenders, brokers, Title Companies, and the other third parties are not going to eliminate their fees (their income).  They are not non-profit organizations.  They are businesses, and their business is facilitating the mortgage process so that you can buy a home.  They will be paid their fees or why be in business?

So what about those "Flat Fee" loans you hear about?  Well, there are two types.  In the first, the lender determines the total cost of certain closing fees, and simply lumps them into one figure - a flat fee.  No real savings there.

In the other, where you are promised "One Low Fee", there are two things that happen.  One is that the lender chooses certain closing costs that they will "pay for you".  So first you must identify which fees they are paying and which fees you will still be required to pay.  The other step in offering this "Low Fee" is to increase the interest rate on the loan enough so that the value of the loan now has a premium built in, creating sufficient excess funds for the lender to "pay" certain costs.  So you will not avoid the costs, but pay them over time as a result of a higher interest rate. 

In the case of the "No Closing Cost" loan, the interest rate is simply increased that much more to create enough additional income for the lender to pay all the closing costs. For a more detailed explanation of just how this all works, click for the FREE MORTGAGE REPORT which includes "No Closing Costs, No Way!  The True Cost of 'No Cost', Flat Fee, and No Closing Cost Loans".

This is not to say these are bad loans.  The concept has been helpful to many homebuyers.  Some borrowers would prefer to lessen the upfront cash requirement to purchase and close on a new home, and are quite comfortable with the higher monthly payment.  Over time this generally costs a little more, but it does help when a buyer is a little short on cash yet has adequate income to manage the higher monthly payments.  Others prefer to make the upfront payment and have a lower interest rate and monthly payment.  It is completely a matter of personal choice.

The point is, there is no way to avoid closing costs, and you need to be aware of exactly what you are getting when choosing a loan.  These loans offer nothing special, no money-saving deals, just a choice as to when and how you pay all the fees involved in the mortgage transaction.