Tracking rates, closing costs can help you avoid overpaying for a home loan

— -- Tired of the bar scene? Skip happy hour and visit some open houses in your neighborhood. Faced with lackluster sales, real estate agents and sellers are spicing up their open houses with wine, live entertainment, hot towels and door prizes. And while you're sipping complimentary chardonnay, you can check out your neighbors' window treatments.

And who knows? You might stumble on your dream house, at a price you can afford. Still, even in a buyer's market, you could end up paying more than you expected. Let's look at two factors that could raise the cost of buying a home — and how to avoid them.

Rising mortgage rates.

Average rates for 30-year, fixed-rate mortgages were 6.26% last week, the highest since March, according to a survey of large lenders by Bankrate.com. A survey by HSH Associates, which includes rates on "jumbo" mortgages for higher-priced homes, puts average rates even higher, at 6.7%. And there's a good chance that mortgage rates will continue to climb in the weeks to come, says Bob Walters, chief economist for Quicken Loans.

A sharp jump in oil prices has heightened concerns about inflation, thereby pushing up rates on long-term government bonds. That's led to an increase in long-term mortgage rates, Walters says.

By shopping around, you might be able to find a lower-than-average rate, particularly if you have good credit. Once you find an attractive rate, you should lock it in, Walters says.

The downside to locking in a mortgage rate is that rates could drop, leaving you with a higher rate than you would have gotten otherwise. But if that happens, Walters says, you can always refinance; all you'd lose is the cost of refinancing your new loan.

On the other hand, if you don't lock in a rate, and rates jump, you could lose thousands of dollars over the life of your loan. "If you lock in at 6% and close that loan, and interest rates go to 7%, 8% or 9%, you've hit a monstrous home run," Walters says.

For most home buyers, a 45-day lock is sufficient, says Cameron Findlay, chief economist for LendingTree, a website that lets borrowers shop for loans. You might have to pay extra for a longer period, he says. And make sure you're dealing with a reputable lender that will honor your locked-in rate.

Closing costs.

A new study commissioned by the Department of Housing and Urban Development concludes that there are huge disparities in the closing costs that different home buyers pay, even when they have identical credit scores, loan terms and mortgage amounts. Economist Susan Woodward, author of the study, said that many buyers overpay their closing costs by thousands of dollars. The study also found that African-American and Latino borrowers pay higher closing costs, on average, than non-minorities do.

HUD Deputy Secretary Roy Bernardi says the closing process is so complex that it's hard for consumers to shop around for the lowest-cost loan. Lenders and mortgage brokers are required to provide a good-faith estimate of closing costs. But they face no penalty for giving you an estimate that's much lower than the actual closing costs.

HUD has proposed improving the estimates that lenders are required to provide borrowers so they more closely reflect the actual closing costs. But those changes are unlikely to take effect any time soon. Here are some tips for keeping closing costs down:

•Understand the relationship between your interest rate and closing costs. Ideally, the higher your upfront costs, the lower your interest rate, and vice versa. But in many cases, Woodward said, borrowers who agreed to a higher rate received no break on closing costs.

•Consider a no-cost loan. These loans impose no upfront fees. Instead, the costs are wrapped up in the loan in the form of a higher interest rate. But even with the higher rate, average borrowers with no-cost loans paid less for their loans than those who paid upfront fees to a lender or mortgage broker, Woodward said.

Walters says no-cost loans are a good choice for borrowers who plan to sell their homes or to refinance in a few years. But if you plan to keep the loan for a long time, he contends, you're better off reducing your interest rate by paying "points" — upfront fees that will lower your interest rate. One point is equal to 1% of your loan amount.

To figure out how long you'll need to keep your loan to break even, ask your lender or mortgage broker to show you how much you'll save in interest each month by paying points. Or go to calculators.usatoday.com, find the list of mortgage calculators, and click on, "Should I pay more points and take a lower interest rate?"

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: sblock@usatoday.com.