You’ve found your dream home, the price is right and the bank has approved the mortgage, but those closing costs sure do add up quickly. It can be frustrating when you think of all the fees that stack on top of the down payment you already have to make on the house.
Thankfully, there are ways to chip away at the fees and extra money you have to pay during the homebuying process, which means you’ll have more money to spend on your new house instead.
What are closing costs?
For buyers who are purchasing a home with a mortgage, there are closing costs involved. It’s roughly 2% to 7% of the sale price, according to Realtor.com, which goes to paying third parties who were involved in facilitating the sale of the property. That means that both the seller and buyer will have to chip in for the closing costs, but buyers are responsible for a big chunk of it.
Some fees that homebuyers can expect to pay include:
- Origination fee
- Credit report fee
- Home appraisal fee
- Home inspection fee
- Title search fee
- Survey fee
Private mortgage insurance (if you can’t swing a down payment that’s 20% of the purchase price)
Some fees that sellers can expect to pay include:
- Closing fee
- Fee to transfer the title
- Taxes on the home sale
- Attorney fees, if applicable
How do I figure out the total costs?
To help with financial planning, many mortgage lenders have closing costs calculators on their websites. It may not be exact, but it gives buyers a better idea of how much money they can expect to pay and need to put aside.
Can any of these fees be eliminated?
Unfortunately, many of these fees have to be paid. They’re a normal part of the buying and selling process to ensure that the home meets standards and is move-in ready.
On the bright side, there are ways to either save money on the closing costs or to spread it out over time so it’s not such a hit to your pocketbook. Keep reading to see some tips and tricks to help with avoiding closing costs.
- No-closing-cost mortgage: It might sound too good to be true, but a no-closing-cost mortgage is an option to have those closing costs rolled into your mortgage. This allows you to avoid paying the fees upfront and instead spread it out with your monthly mortgage payments.
This could also mean you’ll be able to pay the bank a larger down payment since you’ll be saving costs at the front-end of the purchase. On the downside, those closing costs are now going to be impacted by interest rates, meaning that you could be paying more in the long run by taking the no-closing-cost mortgage route.
If interest rates drop, however, you can refinance the house, but don’t forget there are closing costs you’ll have to pay again!
- Reduce your down payment: Though not ideal, buyers can take away some of the money they set aside for the down payment and move it into closing costs. This allows you to pay it all up front while still making a sizeable down payment. Should you go this route, it’s important to communicate this with the mortgage lender to ensure that the new down payment amount is sufficient and meets the bank’s requirements.
- Compare fees: While there are some fees that are set in price, like filing fees, that’s not the case with lenders and inspectors. Just like with any other business, companies set their own rates, which may vary. Before moving forward with a lender or inspector, compare their fees with other reputable companies to ensure you’re getting the best deal, while also working with someone who is reliable and experienced.
Don’t be afraid to look at estimates provided by these companies and ask what certain fees are. You might be able to save yourself some money if they’re unnecessarily vague, which may be a sign they’re nickel and diming customers.
Think of it like shopping for a car: There might be room for negotiation — or you can decide to move forward with another company.
- Close on the house toward the end of the month: A handy trick to saving money on closing costs is to close on the house at the end of the month. That’s because the less days left to the end of the month, the less prepaid interest the buyer has to pay. The interest adds up between the day that you close on the house and the start of the next month.
This isn’t a hard-and-fast rule, but it’s worth bringing up to your agent to get their opinion, as well as their availability.
- Take advantage of discounts from the bank: Some banks provide incentives and discounts with their borrowers. For example, there might be discounts for customers who have a personal or business banking account with them already.
There are also “mortgage points,” meaning that the borrower can pay fees to lower the interest rate on their mortgage. A little bit of money up-front can mean a lot of savings for years to come on the loan amount.
Research the bank online for opportunities, or simply ask the lender. You never know what you’ll find out.
- Have the seller chip in: During a housing market that is in favor of buyers, you might be able to get the seller to contribute to closing costs in order to move the sale along, according to Quicken Loans. These are called seller concessions and can go toward inspections, mortgage discount points, property taxes, and other closing costs. Especially if a house has been on the market for a long time, it might be money that the seller is willing to pay to get the house off their hands.
- Avoid closing costs by selling your property to Meridian Trust: Selling or buying a house is something to celebrate so don’t let closing costs dampen the good news. A trusted homebuying company, Meridian Trust pays cash for townhouses, condos, apartments, and multi-family units — and takes care of all the customary closing costs for you. No commissions or hidden fees. You simply call us to find out how much your house is worth and we can give you a no-obligation cash offer over the phone.
To find out how much your house might be worth and avoid closing costs, call us at (954) 807-9087.
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.
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