Closing costs are the fees and expenses that you pay when you finalize a home purchase or refinance. They can vary depending on the location, lender, and loan type, but they typically range from 2% to 5% of the loan amount. However, you don't have to accept the closing costs as they are. Here are some ways to avoid or reduce them and save money on your real estate transaction.
One of the easiest ways to lower your closing costs is to ask the seller to pay for some or all of them. This is especially possible in a buyer's market, where sellers are more motivated to sell and may agree to cover some of the fees as part of the deal. However, you should be aware that this may affect the seller's willingness to negotiate on the price or other terms, so you should weigh the pros and cons carefully.
One example of negotiating with a seller to reduce closing costs is to ask them to contribute towards closing costs as part of the purchasing agreement. This is known as seller’s assistance. This works best with motivated sellers in a slow market or if they need to sell quickly. Be sure to check with your lender because there may be restrictions on the amount of concessions allowed. Another way to negotiate with a seller is to ask them help help buy down the interest rate. This is extremely helpful in a market with inflated mortgage rates.
Common practice in minimizing the impact of closing costs is to assess and include them in the Closing Adjustment Statement : - legal costs - ownership search - mortgage payments and interest adjustments - any property taxes prorated for the closing date - other miscellaneous items This way using one lawyer party will reduce the paper work and the paper flow . I strongly recommend to check the Closing Statement of Adjustments for any routine mathematical errors.
Another way to save on closing costs is to compare different lenders and their fees. Some lenders may charge higher or lower rates, origination fees, appraisal fees, or other costs than others, so it pays to shop around and get quotes from at least three lenders. You can also ask for a loan estimate, which is a document that breaks down the estimated closing costs and terms of the loan. This can help you compare apples to apples and choose the best option for your situation.
In my experience it is best practice to compare at least 3 lenders when looking to purchase a home. A lower rate can save you a significant amount of money over the life of your loan. You will want to be sure the lender you choose is a good personality fit, sets expectations up front and is extremely responsive.
I agree, and often builders entice buyers to use their preferred lender through providing incentives, such as closing cost assistance or lower interest rates. Something to remember however, with supply chain concerns or delayed closings and rising interest rates it may result in higher cash to close for some buyers. In such situations, buyers should communicate their financial concerns with the lender, who can then coordinate with the builder to potentially cover the additional closing costs or negotiate buydowns.
Before you close on your loan, you should receive a closing disclosure, which is a final statement of the closing costs and terms of the loan. You should review this document carefully and look for any errors or discrepancies from the loan estimate. If you find any, you should contact your lender and ask for an explanation or correction. You may be able to save money by catching and resolving any mistakes or unnecessary charges before you sign the papers.
It is very smart to take your time with the closing disclosures and go through each line with your lender, real estate agent and closing attorney or title company. If an error is discovered after the fact it may be irreversible and costly. Pay special attention to lender fees, real estate commission fees and negotiated concessions as these are common mistakes I have discovered while reviewing closing disclosures with my clients.
Some lenders may offer you a no-closing-cost loan, which means that they waive or roll the closing costs into the loan amount. This can save you money upfront, but it may cost you more in the long run, as you will pay interest on the higher loan amount. You should consider this option only if you plan to sell or refinance the home in a short period of time, or if you can afford to pay a higher interest rate or monthly payment.
As a mortgage professional of 24 years, I cringe when I hear the words "No Closing Cost" loans. It doesn't exist folks. "Rolling the fees into the loan" as expressed above does not equate to a "No Closing Cost" loan. Raising the interest rate to cover the fees also does not equate to a "No Closing Cost" loan. If you are applying for a mortgage, you will be charged fees. It's that simple. Not just from the lender. You will have title/escrow, or attorney fees, depending on which state you live in. However......the lender can raise the rate and use the YSP to "cover" the fees if the borrower elects to take a higher rate.....but there will always be fees. Let's keep our industry terms on the up and up and educate borrowers correctly ;-)
This is rarely a good option. In my experience, lenders charge a higher interest rate, which results in paying more in interest over the life of the loan. This option also limits your pool of lenders to choose from because not all lenders offer no-closing cost loans. On the other hand, this option could benefit a buyer who is an investor that may use the money saved from not paying for closing costs. They may choose to apply more finances towards equity building upgrades and repairs.
If you are a first-time homebuyer, a low-income borrower, a veteran, or a member of a certain profession or group, you may qualify for closing cost assistance programs from various sources, such as federal, state, local, or nonprofit organizations. These programs may offer grants, loans, tax credits, or discounts to help you cover some or all of the closing costs. You should research and apply for these programs as early as possible, as they may have limited funds or eligibility requirements.
If cash to close is a concern for you, be upfront with your lender. Then your lender can cover everything and all your choices during your initial meeting. You pick the plan that meets your needs. Your lender shares the plan with your Realtor. That way all you have to do is worry about finding the perfect home and there are no last minute stressors trying to figure out how you’re going to finance your dream home. Talk to a lender EARLY in the process.
Do your research before speaking with a lender. Be sure to check online to educate yourself. A good real estate agent can help you with this too. Some examples of this include: -tax benefits and reduced closing costs programs for first time home buyers. There is usually a course you can take online making you eligible to receive incentives. -First responder discounts on lender fees and other closing costs. -VA loans assist military veterans with no or low down payment options, competitive mortgage rates, and reduced home inspection fees. -Low income applicants can also search geographic areas that give incentives such as grant money towards closing costs.
Another way a military buyer can receive help with their closing costs is to work with a real estate agent who participates in the “U.S. Military on the Move”program. With my participation in this fabulous program, I am able to give my military clients 20% of my commission to use towards their closing costs! ????