Buying a house is a celebratory milestone, but it’s also an expensive endeavor. You not only have to come up with a down payment but also have to cover the closing costs. In fact, when it comes to buying a home, closing costs are an unavoidable evil! Representing an additional percentage of the purchasing price, closing costs can undoubtedly have a dampening effect on the excitement of buying a new home. And although you may not completely cut closing costs, some costs can be lowered or reallocated through negotiations. Keep reading to learn how to lower closing costs when buying a home!
- Closing costs on a home can mount fast.
- While taxes are typically not negotiable, other closings, such as underwriting fees, can be.
- You can lower closing costs by comparing and negotiating lender fees, asking the seller to contribute, and closing on your home near the end of the month.
- It also pays to shop around on some closing costs, including home inspection, title insurance, and home surveys, to get the best deal.
Evaluate the Loan Estimate
When you get your Loan Estimate, don’t simply glance at it. Take your time to analyze each item with the lender, questioning what every fee covers and the reasons it costs as much as it does. That’s an excellent way of identifying padded or unnecessary fees. Moreover, keep an eye out for fees with similar names, like they may mean the lender is charging twice for doing the same. One example is processing fees and underwriting fees.
Know Where the Savings Are
At the bottom of the first page of the Loan Estimate form, you’ll find the total closing costs and cash needed to close the loan. The heart of your savings is on the “services you can shop for.” these fees include:
- Home inspection and appraisal fees
- Title search, which investigates a property’s history for restrictions or liens
- A settlement agent, also known as an escrow agent or closing agent, represents the buyer and oversees the closing and legal transfer of the real estate title.
- Lender’s title policy protects the lender in case of an issue with the title.
Do some research, talk to your real estate agent, make some calls, and see if you can find cheaper options for these services.
Don’t Overlook Lender Fees and Discounts
Most lenders will charge loan costs, including underwriting fees. While you might not be able to remove all of them, you can try to get the lender to knock them down. It’s also wise to compare offers from different lenders. If you can get an estimate before submitting an application, try to get different mortgage estimate forms from various lenders to compare. For an accurate basis of comparison, you should get these estimates on the same day and at the same time, since mortgage pricing changes so frequently.
Essential Note: Some lenders offer customers incentives on their mortgages. It’s wise to ask for the discount and incentive and get denied than to not ask at all.
Consider a No-Closing Costs Mortgage or Wrap the Closing Costs into the Loan
A no-closing costs mortgage is vital if you’re short on cash. But the closing costs you don’t pay upfront will be folded into the mortgage, increasing your monthly mortgage payments. Essentially, with this type of mortgage, the lender will cover the fees, but you’ll be paying higher interest rates for the duration of the loan, meaning larger mortgage payments. And since you’re already borrowing probably hundreds of thousands of dollars, why not tack on a few thousand more?
Close Towards the End of the Month
You typically become legally responsible for repaying your mortgage once your home purchase closes. If the loan closes mid-month, you’ll generally make your first mortgage payment on the first of the following month. In that case, per diem interest fees are evaluated between the closing date and the first mortgage payment date. But if you close on your home purchase at the end of the month, you can actually minimize these per diem interest fees.
Apply for an FHA Loan
The Federal Housing Administration (FHA) backs home loans for qualified low to moderate-income homebuyers. These loans, called FHA mortgages, usually have lower down payment requirements and interest rates. They also generally include closing costs as part of the loan, meaning you can pay them gradually with your monthly mortgage payment. If you’re eligible for an FHA mortgage, it’s an excellent way to lower closing costs when buying a new home.
Get the Seller to Pay
While you (the buyer) have to pay some closing costs, the seller is also obligated to pay others, including the real estate agent commission. You may ask the seller to chip in for your portion, which will reflect as “seller credits” on the loan estimate form. Depending on the market and the seller’s motivation level, you can negotiate with the seller to lower some closing fees. It’s also crucial to note that getting the seller to pay these costs depends on your negotiation skills, and that’s where a real estate agent comes in. A skilled agent will negotiate on your behalf ensuring you pay as minimal closing costs as possible.
Lower Your Closing Costs Today!
If you’re prepared for homebuying closing costs before they hit, you won’t be surprised by the final figure. Don’t settle for what the lenders quote you, and don’t shy away to shop around to compare costs from other lenders early on in the process. You should also try to negotiate some of these costs, potentially get the seller to help, and look for state and local programs for more closing costs assistance.For more information about closing costs, and the overall homebuying process, call our real estate experts. We’ve been helping our clients buy their dream homes for years, and we’d love to do the same for you.