You’ve finally found your dream home — congratulations! But just when you’re about to close on the deal, you find out that there are a bunch of expensives you didn’t expect: closing costs. They can surprise any first-time homebuyer, and sneak up on those who are refinancing as well.
Fortunately, there are ways you can save money on closing costs, and we’ve got the scoop on them.
What are closing costs?
In a nutshell, closing costs are fees generated by your lender — the bank that is giving you your mortgage, hopefully one of the best mortgage lenders out there — that cover costs associated with creating your loan. These fees pay for things like a title search and a home appraisal. Of course, costs can vary by your location and the kind of mortgage you selected.
The sum of these fees will be about 3% to 6% of the total price of your home, so be sure to plan accordingly. Your lender is required by law to give you a loan estimate showing all of these fees within three days after you submit your mortgage application.
What closing costs can be shopped for?
There are some closing costs that you can shop for, allowing you to compare prices and snag the best possible deal. These costs include the title search, the title insurance binder, the survey, the home inspection, and the escrow agent (also known as the closing agent or settlement agent).
How do you do comparison shopping? Your best bet is an online marketplace where companies pay to be listed. Don’t forget to factor in customer reviews in addition to cost; as with anything, the cheapest option isn’t always the best one.
Pro-tip: Skip the appraisal if you had one recently.
Which fees can you negotiate with the lender?
Your success may vary when it comes to lender fees, as each bank is a little bit different. However, there are some costs that you can attempt to negotiate: the rate lock fee, underwriting fee, broker rebate fee, application fee, and loan processing fee.
FYI: If your bank simply has one blanket charge for items like insurance underwriting and the like, there’s nothing wrong with that. However, if you start to see more and more line items pop up, especially with generic terms like “delivery fee,” that’s a sign that you should question your lender about the fees.
Ask the seller to pay some of the closing costs
This may sound like a fool’s errand, but you may be able to get some financial assistance with closing costs from the seller. Asking the seller to help with closing costs may be harder to accomplish in a seller’s market — why should they budge on anything when there is so little housing inventory?
But the seller might be willing to help you out, especially if you paid a fair amount over the asking price for your new house. Perhaps they’ll pick up the tab for the pest inspection as they know they had issues with this. It’s never a bad idea to ask.
Set your closing date near the end of the month
You don’t have to get into the nitty-gritty details as to why this can save you money, but if you set your closing date toward the end of the month as opposed to the beginning, you’ll save some cash on interest.
If you are curious as to how to make this a reality, have a chat with your mortgage lender. This isn’t going to save you a large amount of money, but everything adds up when it comes to closing costs.
Ask your lender for any possible rebates and discounts
In addition to asking your seller for help offset your closing costs, ask your bank about programs that can get you a discount. If you’re applying for a mortgage through your existing bank, they may offer discounts for clients.
For example, do you have a credit card with a bank such as Bank of America with the Preferred Rewards program? That might help you chop off up to $600 on your origination fee. Or perhaps you paid off a personal loan with a bank and have received money-saving offers if you take out a loan with that lender again. It can’t hurt to ask.
Investigate grants and other programs
Depending on where you live, you might find that there are grants available for folks looking to purchase a home that can save you big money. For instance, if you work in the public service sector, there could be financial assistance available to you.
Many states offer special programs to assist first-time homebuyers. These programs may help pay for closing costs as well as offer down-payment assistance.
Other programs may require you to attend homebuyer education classes or stipulate that the house must be HUD-owned.
Don’t buy points
If mortgage rates are low you can likely save some cash by not purchasing mortgage points to lower your interest rate. After all, the cost of a point is 1% of your total mortgage. That’s a lot of money, and it’s due when you go to settlement.
Buying points also isn’t worth it if you won’t be living in your house long enough to reap the benefits. So skip this step and save money.
If interest rates are high, though, you should consider paying points to lower your monthly payment.
Consider bundling closing costs into your mortgage
Let’s say you had to scrape together your down payment or wound up paying more than you expected for your new home. That means you’re cash strapped and you may need all the help you can get.
If you’re in this situation, ask your mortgage lender if they can tack on the closing costs to your loan. Lenders may charge a higher interest rate to do this.
Rolling the closing costs into the mortgage doesn’t mean those fees disappeared. Be aware that you will be paying interest on those fees as part of your loan. So only do this if you absolutely have to.
Buying a house is complicated. You may start the process wondering “what is a mortgage?” but you can finish it feeling like quite the expert. And if you managed to save on closing costs along the way, all the better. Enjoy your new digs.
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