How To Minimize Closing Costs
Closing costs are fees associated with mortgage acquisition, and can be anything from title insurance to origination fees to appraisal fees. They may come as a surprise for borrowers who thought their only financing expense would be an initial down payment and then some interest along the way. But closing costs are not only necessary, they’re expensive, and can easily equal 6% of the loan amount, effectively competing with a down payment.
Borrowers can do a few things to lessen, minimize or practically eliminate their closing costs:
- Have the home seller pay closing costs.
The seller may be negotiated into paying some or all of a loan’s closing costs as an incentive for the buyer to finalize the home sale. However, this won’t work well if a buyer is trying to lowball a seller. Buyers should offer at least market value or not too far below asking price – depending on the situation – if they want the seller to pay for closing costs. It’s either money out of a borrower’s pocket now, or over time.
- Pay less for the home
Many closing costs are based on a percentage of the mortgage loan amount. If for whatever reason the option above is not going to happen, talking the price down could be a way to lessen closing costs. Although the money saved on closing costs may not amount to much, the overall principal debt would go down by thousands.
- Swallow a higher interest rate
This will cost the borrower more over time, but taking a higher interest rate instead of paying discount points (1 point = 1% of the loan amount) in order to lower interest rate and save some money up front may be ideal for the borrower who needs more leeway in there budget during the initial move.
Another option is always to shop around for lenders and see who offers fair and standard fees for their services, and who offers fluff fees. New mortgage regulations mean that lenders have more restrictions on whom they can approve, but not necessarily that borrowers are protected from every possible pitfall. Speak with a trusted professional with proper licensing, experience, and a reputation for transparency.