Contemplating a home purchase? You’ve probably heard about closing costs. We’re assuming you’ll want to keep those as low as possible, right? Right. Closing fees run between 3% and 6% of the mortgage, so they’re not exactly small change.
The drive to just pay up and move in is understandable, but you wouldn’t buy a car or a TV without researching prices on other, similar products. Same goes here. And cutting these closing costs even a little could help you buy a new stove or outfit the nursery.
1. Compare costs
With closing costs, a lot of money is on the line. That’s a good reason to shop around for the lender who offers the lowest closing costs. You can also ask a lender to match low closing costs offered elsewhere.
Besides getting quotes from multiple lenders, you can get quotes for some services as well. There are some services included in the closing costs (the inspection fee, the survey fee, the title search, etc.) that you are allowed to shop around for.
In other words, you don’t have to go with the provider your lender suggests and you can try to find a lower price elsewhere. The closing cost services you can shop for will be listed as such on your Loan Estimate. Do some research, make some calls and see if you can find cheaper options.
2. Evaluate the Loan Estimate
When you get the Loan Estimate, don’t just glance at it. Take the time to go through each item with the lender, questioning what each fee covers—and why it costs as much as it does.
This is a good way to identify padded or unnecessary fees. Also, keep an eye out for fees with similar names, as they may mean the lender is charging twice for doing the same thing.
A common example: processing fees and underwriting fees.
3. Negotiate fees with the lender
Once you have a handle on the fees the lender wants you to pay, you can start negotiating. Ask for more hidden fees to be knocked off the final price tag. Ask your lender to give you what’s called the Closing Disclosure form (detailing your final closing costs) as soon as it is available.
Compare what’s on the Closing Disclosure to what was on the Loan Estimate and ask your lender to justify any discrepancies.
4. Ask the seller to sweeten the deal
Some sellers will be willing to lower the sale price of the home to offset the sting of closing costs. Others may be willing to cover some of your closing costs. Depending on the market and the seller’s motivation level, you may be able to negotiate with the seller to reduce some closing costs
5. Delay your closing
Remember the pre-paid daily insurance charges from the list above? You can minimize those charges by closing at the end of the month. Plan ahead and try to schedule it when it means you’ll have to pay less money upfront.
6. Save on points (when interest rates are low)
If you’re buying in a low interest-rate environment, you probably don’t need to pay extra for points to lower your interest rate. Each point will cost 1% of the loan value, so paying for points can add up fast. And you pay that money upfront as part of the costs. For each point you buy, you’ll have to stay in the home for longer if you want to break even.