Avoiding Closing Costs, Saving You Money

For many potential homeowners, the dream of owning their own home comes with a hefty price tag. Tack on fees, miscellaneous costs, and closing costs, and some believe turning the key to the door of their new home is simply impossible. However, there are a few things you can do to help minimize these expenses and live your dream of owning a home.

What are closing costs?

Closing costs are often different fees or costs paid by the buyer in the course of buying their new home. These costs range from the expected – mortgage origination and recording fees to name a few – to some that are not always expected such as attorney’s fees on the contract for the home. They often also include any applicable taxes, government fees, and insurance. One note here is that closing costs and down payments are two separate categories of costs: the down payment, which is an out-of-pocket cost dedicated to paying down the principal of the home loan, and closing costs, which are fees associated with the transaction. While they are both out of pocket costs, closing costs do not reduce your mortgage principal nor you’re your down payment reduce your closing costs. Generally, total closing costs range from three to six percent of the property’s value but there are a few ways to help ensure this number is as low as possible.

What’s the first step toward lowering my closing costs?

In a word: negotiate. Oftentimes, banks will be flexible on some of the discretionary items associated with the purchase of the home – such as a mortgage origination fee – and you can find some savings there. However, some items, such as taxes and fees are non-negotiable no matter how persuasive your case or credit score.

How do I negotiate my closing costs?

Start with your mortgage as sometimes banks will bundle closing costs into the actual mortgage by either raising the interest rate or bundle the costs into the total cost of the mortgage. Next, speak to the seller. Some sellers will be very motivated to sell and thus can assume the buyer’s closing costs in the form of a credit helping ease the way for the transaction.

You should also shop around as homeowners insurance, title insurance, home inspections, and other services have differing fees at times which can save you hundreds or thousands of dollars off the total cost of the transaction. Additionally, shopping around for lenders can help save you money provided you start early and scrutinize the loan estimate provided for potential savings, especially if you have competitive offers from other lenders, enough funds for a substantial down payment, or excellent credit which makes you a desired customer anywhere. Finally, timing your purchase just right can help you save too. Closing on a mortgage mid-month will rack up per diem (per day) interest fees before you begin paying your mortgage thus closing toward the end of the month can potentially save you hundreds of dollars over the life of the loan.

Closing costs and the home buying process

While closing costs are a fact of life when it comes to buying a home, these tips will help you minimize the amount of money you pay out of pocket or over the life of the loan so you can re-invest those funds into your home or other priorities for you and your family.