Closing costs can add a lot more money to the final price tag when buying a home, and much of them need to be paid right out of the gates. Some of these fees might seem like they came out of nowhere and can be difficult to understand, like origination fees or title insurance. Luckily, there are steps you can take to cut back on these closing costs to potentially save you thousands of dollars at the end of the day.
Here are some tips to keeping a lid on potentially out-of-control closing costs.
Shop Around For Different Quotes From Different Lenders
Getting on the phone with one lender after another is a pain, but it could wind up saving you quite a bit of money in closing costs. Don’t just settle with the first lender you come in contact with – you just never know if there is a better deal out there. Get estimates from a minimum of three different lenders to give you more options for comparison purposes. Consider the entire package when comparing, including interest rates and closing costs. Ask for a Good Faith Estimate (GFE) form, which details every individual fee and makes it easier for you to compare lender packages.
Schedule the Closing For the End of the Month
If you close at the beginning of the month, you’ll be stuck paying in full for that month’s interest, taxes, and HOA fees. Instead, if you close near or at the end of the month, you’ll be left with fewer costs associated with these pro-rated items.
Roll the Closing Costs Into the Mortgage
Lenders might charge you a little bit more to wrap all the closing costs into the mortgage, but if you’re strapped for cash to cover all those pesky closing costs, this could be a great option. Rather than paying all the closing costs upfront, you can pay this amount off over the life of the mortgage instead.
Ask About a Loyalty Program
Some banks offer ‘loyalty programs’ which involves helping clients with closing costs if that bank is used to obtain the mortgage to finance the home. Loyalty programs can lower origination fees for preferred reward members, and thereby reduce the overall total.
Ask the Seller to Help Cover the Closing Costs
This might sound outrageous, but it is an option under the right circumstances. If the seller is motivated enough to make a sale, you could save some money on your closing costs. Many home loans allow sellers to pay up to 6% of the sales price as a closing cost credit, which could be attractive because it is tax-deductible. However, you might need to offer as close to asking price in order to make this option attractive to the seller.
Avoid Paying Points With a Low Mortgage Rate
Buyers can consider “paying down” interest points in order to lower the interest rate on the mortgage. However, considering the fact that mortgage rates have been hovering near historic lows over the recent past, this might not be a good idea right now. Paying upfront discount points is often unnecessary when interest rates are really so low. Doing so will just increase the final closing cost total upfront, which is the opposite of what you’re trying to do.
Get Different Quotes For Homeowner’s Insurance
Just like you should shop around with different lenders to find the best mortgage package for you, shopping around for homeowner’s insurance can also save you some money. Getting different quotes from different insurance providers can lower your closing costs and save you money over the long haul on insurance premiums.
The Bottom Line
Closing costs are inevitable when buying a home, but that doesn’t mean you shouldn’t take some steps to see if they can be reduced. With a little bit of effort on your part and some guidance from your real estate agent, you can get into your new home without breaking the bank.