Purchase price and down payment get all the attention when buying a house. But there’s a third cost that deserves the spotlight. Closing costs, which are fees above and beyond the purchase price, tend to sneak up on buyers. Coming in around 2 to 5 percent of a home’s purchase price, these extra fees are nothing to sneeze at. For a $400,000 property, you could be asked to bring an extra $8,000 to $20,000 to the settlement table to complete a real estate transaction.
Is there any way to get these fees lowered? Sometimes the answer is yes. Here’s how:
1. Shop Around for Loan Estimates
From local banks and credit unions to big box lending institutions, there’s no shortage of mortgage originators. The first step is to narrow down your options and get pre-approved. Along with your pre-approval, each institution should provide a loan estimate, which itemizes the fees and costs involved.
Once you have a few estimates in hand, you can compare the breakdowns side by side. Are any of the estimates glaringly low or alarmingly high? Some of the line items are fixed costs, but others vary from lender to lender. For these items, pricing is set at the discretion of the lender and you may notice some inflated figures or erroneous fees. If you drill into the fees that are directly charged by the lender, like those for the application, loan origination and underwriting, you may be able to talk the numbers down.
2. Negotiate With Your Lender
Your goal is to find a reputable loan provider with the lowest possible closing costs, while not compromising on rates or terms. Once you have narrowed down your shortlist of lenders, you can try and negotiate further. If you have a preferred lending institution, but received a lower estimate from someone else, talk to the favored loan officer to see if price matching is an option. They may be able to sweeten the deal by waiving costs to earn your business. Every little bit helps! One word of caution is to tread lightly when you pit lenders against each other. Be fair and communicative because you don’t want to burn a bridge.
3. Restructure Your Mortgage
If after shopping (and haggling!) with lenders, the costs are still too high, you can try to restructure your mortgage. “No closing cost” mortgages may be available. These types of programs roll the closing costs into your payment plan and can be advantageous if you need to reduce upfront expenses. Of course, there’s always a catch! In the short term, “no closing cost” mortgages keep money in your pocket, but you could end up paying more over the lifetime of your loan.
4. Ask the Seller to Chip In
Buyers pay the lion’s share of the closing costs – especially if a mortgage is being obtained. In some situations, you can look to the seller to help foot the bill. This is more often the case in a buyer’s market, or if a seller is highly motivated to get his or her home off the market.
If defects are found during the inspection, you may want to request either a reduction in purchase price or assistance with the closing costs.
A closing cost credit can be negotiated upfront when you submit an offer and included in your contract to purchase a home. It can also be negotiated after a home inspection. If defects are found during the inspection, you may want to request either a reduction in purchase price or assistance with the closing costs. Once another round of negotiations opens up, anything goes. Opting for a closing cost credit keeps the money in your pocket. You can sit on that money or use it right away to fix shortcomings with the property.
5. Pick an Optimal Closing Date
Timing also plays a role in your bottom line. Some of the prepaid closing costs, like taxes, utility bills and other fees, are pro-rated. Therefore, taking ownership at the end of the month can play in your favor. For example, if you’re purchasing a condo that is part of a homeowners association (HOA), you will prepay more condo fees by closing earlier in the month than later. These fees can really add up on a per diem basis if you’re buying in a tax-heavy location or in an HOA with expensive dues.
6. Look for Rebates
You may also be able to scrounge up a rebate or discount. Did you attend a first-time buyer course hosted by your lender? You may have been promised a rebate if you ultimately select the entity as a mortgage provider. Some areas offer first-time buyer credits. A local lender may be able to point you in the direction of any grants offered by your local municipality. Certain states also offer buyer assistance programs that may include closing cost rebates.