Practical Tips to Cut Closing Costs!
For most homebuyers, buying a home is the single most expensive purchase they will make during their lifetime. Along with committing to monthly payments toward the principal, interest, and taxes on your new home, you will also need to prepare for the costs associated with closing on a home. For the buyer, there are essentially two separate closings – one for the mortgage and another for the actual purchase of the home. Typically, costs associated with closing on a home can be paid by either the buyer or the seller. For this reason, the issue of closing costs is something that is a part of the negotiation process when buying a home. Because closing costs can be a significant hurdle to buying a home, consider the following tips for cutting your closing costs:
- Negotiate with the seller – because either the seller or the buyer can pay the majority of the closing costs on the actual sale of the home, getting the seller to pay some of the costs is one way to decrease the amount of money a buyer must bring to the table when closing on a home. Since the seller will not actually need to bring cash to the closing (seller paid closing costs will simply be subtracted from their profit on the sale in most cases), a seller may be willing to negotiate if it makes the sale go through.
- Search for down payment assistance – try and get approved for a government backed loan that requires less of a down payment. The down payment required on an FHA loan, for instance, is considerably less than for conventional loans. In addition, many state home buying programs offer down payment assistance for first time, low income, or elderly home buyers.
- Accept a higher interest rate – this may sound contrary to your objective of saving money; however, lenders usually charge points on low interest mortgage loans. A “point” is one percent of the total loan amount. Points can add up quickly. Lenders will often waive points if a buyer accepts a higher interest rate. A buyer has to sit down and do the math to decide if this tactic makes sense in the long run but it will certainly save money at the closing.
- Shop around – when you talk to lenders about a mortgage loan, be sure to ask them about their closing fees as well. Closing fees associated with the loan may include things such as an appraisal and inspection fee, an application fee, and a loan origination fee. These fees can vary widely from one lender to another. Choosing the right lender can substantially lower your closing costs.
- Review your good faith estimate – a lender is legally required to provide you with a good faith estimate of the costs associated with closing on a home. Sit down with your real estate agent and go over the estimate line by line to make sure that you understand the costs and to see if there are any fees that could be eliminated or reduced.
By following these simple tips you may find that the potential closing costs associated with a home purchase can be significantly reduced, making your dream home even more affordable. Good luck and happy home shopping!