Closing Costs Add Up
If you’re a first-time homebuyer, then your closing costs may come as an unpleasant surprise. You don’t want to be blindsided at closing, so it’s a good idea to set realistic expectations for the cost of doing business with a mortgage lender. First things first – know your local market. In some markets, closing costs can be as little as 1%. In other markets, they can be as much as a tenth of the purchase price.
But the good news is that wherever you’re buying your home, there’s a strong chance that you may be able to lower those closing costs, and we’re going to tell you how.
Go for Reissue Rates
If the home’s sellers purchased title insurance within the last ten years, then you may be able to get a discount on your title insurance. Ask for a copy of their policy, and then inquire about a title insurance reissue rate. You may also be allowed to have the issuing company update the previous survey so you can avoid shelling out for a new one.
When checking your loan estimate, you’ll notice that there’s a section for services you can shop for. This section may include things like settlement companies, title insurance providers, pest inspectors, and homeowner’s insurance companies. Your lender will give you a list of recommended service providers, but you’re not required to use them. Shop around to see how much you can save.
You’ll also see a section detailing the services you can’t shop around for, but that doesn’t mean you’re stuck with whatever a particular mortgage lender offers. You’re always free to comparison-shop other mortgage originators, and you’d be well advised to do just that. Getting estimates from other lenders may turn up some great deals, or at the very least, give you some leverage to negotiate lower closing costs from your lender of choice.
Ask for the Seller’s Help
If you’re struggling with closing costs (or just want to save some money), then it may be worth your while to ask the seller to cover some of your closing costs. It’s unlikely that they’ll cover all of them, and your lender may have limits on the total amount the seller is allowed to contribute. Still, it could save you thousands, so it’s definitely worth a shot.
Close at the End of the Month
When you purchase a home, you’ll have to pay prorated insurance premiums from the closing date until the end of the month, so if possible, you should try to close near the end of the month.
Before and After
When you’re initially approved for a mortgage, you’ll receive a loan estimate, or good faith estimate detailing the costs associated with your loan. Your lender is also required to give you a closing disclosure at least three days before you close.
Compare those two documents to make sure your settlement charges match up, or are within the terms of the agreement. Go over any discrepancies with your lender. You may be able to negotiate certain fees, and if you’ve chosen lender-recommended service providers, then your lender is required to reimburse you for settlement charges above the limits specified in your estimate within 30 days of closing.
When Rates Are Low, Skip the Points
When you close on a mortgage, you’ll have the option to purchase points to “buy down” your interest rate. Each point costs 1% of the loan value, and must be paid up front. Mortgage interest rates are currently quite reasonable, and while you’d probably save money on interest over the long haul by purchasing them, every point you buy pushes your break-even point further into the future. When rates are low, you may want to skip buying points, especially if you’re not sure how long you’ll be staying in your new home.
Keep an Eye Out for Junk Fees
Certain lenders will add dubious fees to your closing costs. You might spot fees for items like document preparation, underwriting, or other activities that would seem like they should be included. Many of these fees can be discounted or waived, so you’d be wise to dispute them.
Lower Closing Costs = More Money in Your Pocket
A home purchase is a big investment, and the costs don’t stop at closing. Remember — just when you think it’s all over, you still have to move and buy furniture! The more you save on closing costs, the more cash you can keep in your pocket for those incidentals that invariably come up when moving to a new home. Good luck!
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