When you are purchasing a property, there are administrative costs that must be covered before you can become the owner. These are known as closing costs and include things like application, loan origination, appraisal, home inspection, credit report, attorney, appraisal and survey fees. Most of the time the homebuyer pays these.
The typical closing costs are 2% to 5% of the price of the home. That can be a large difference. On a $350,000 home that is the difference between $7,000 and $17,500. To find out what your closing costs will be you can use an online calculator. But these payments are often a key point of negotiation and the fees will vary by lender, so there are plenty of things you can do to save money on closing costs. Here are some tips.
1. Shop Around
Mortgage rates are not the only costs you need to search around for when buying a home. It’s a good idea to get quotes from several third-party services for things like home inspections, surveys, attorneys and title insurance. Mortgage lenders will include a fee for these services on the good faith estimate, but you can ask for the opportunity to find cheaper options. This can be a great way to save money.
2. Know Your Locale
Location is very important in terms of the closing costs associated with your loan. As mentioned above, the amount you will be expected to pay varies greatly. While some may pay around 2% to 3% of a home’s price, some high-tax areas of the country carry closing costs around 5% or 6%. Different states have very different closing costs — some even carrying a flat fee for title insurance. This is why it can be helpful to ask around in your community or try an online tool to estimate closing costs instead of just assuming a number.
3. Negotiate with the Seller
Take notice of cost estimates and work toward the best deal you can manage. The payment of any and all closing costs should be an important negotiation point between buyer and seller from the start. Depending on market conditions and the seller’s motivation or timetable, you may be able to arrange that the seller pays some or all of these fees.
4. Time the Closing Well
If you close toward the end of the month, you can avoid prepaid interest charges. Your lender assesses charges to cover the time between the settlement date and the end of the month to compensate the lender before you will be paying the “full” interest and principal payment the following month. Whether substantial or nominal, this cost can be significantly reduced by planning ahead and scheduling your closing toward the end of the month.
5. Perform a Final Check
It’s important to review closing cost forms carefully. If the fees have changed from the good faith estimate to the official documents that arrive three business days before your closing, ask your lender for an explanation. If you notice new or significantly higher closing costs, it’s a good idea to investigate and consult with a real estate attorney about your options.
Don’t get intimidated if this is a new process — with enough information and negotiation skills on your side, it can be possible to cut back on closing costs. Even taking into account these money-saving tactics, it’s important to include closing costs into your calculation of how much house you can afford.
More on Mortgages and Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Get a Loan Fully Approved