Closing costs can be around 5% of your home’s price. Added on top of the down payment, moving expenses, and broker fees—it’s not exactly a small expense. Hence, it’s no wonder why so many home buyers are looking for ways to reduce their closing costs. Even if you have prepared for the closing costs before applying for the mortgage, it still makes sense to find ways on how to reduce them. After all, the money you save on closing costs can go into other essential expenses, such as moving fees and home repairs.
Here are the best ways to help you cut down on the closing costs of your house.
1. Compare lenders
Lenders will give you a loan estimate form after applying for a loan, although some lenders may give you one before you even apply. Compare loan estimates from multiple lenders to see which one can offer you the lowest closing costs. You may even ask the lender to match closing costs from other lenders.
Keep in mind that you need legally binding loan estimates to compare closing costs. Closing costs worksheets or fee itemisation sheets won’t cut it.
2. Shop around for services
Services like pest inspection, surveying, and title search are included in the closing costs. Lenders will have a suggested company for each of these services, but you don’t have to go with the companies they choose. You can shop around for these services and find companies that offer lower prices.
However, among these services you can shop around for, the ones that will bring in the biggest savings are title insurance and settlement services. Prioritise these services when shopping around for the lowest deals.
3. Ask questions about the loan estimate
A three-page loan estimate may be tedious to go through, but it’s necessary to give it more than a glance to reduce your closing costs. Go through each item on the list and ask questions about what they cover and why they cost. This will help you spot inflated, duplicate, or unnecessary fees.
4. Negotiate with the lender
After you’ve carefully inspected each item included in the closing costs, start negotiating with your lender. Ask them to remove fees with similar names like ‘processing fees’ and ‘underwriting fees,’ which are essentially their way of charging you twice for the same thing. The same goes for vague or obscure fees and items that are separated instead of wrapped together into one service.
5. Negotiate with the seller
Your seller may be willing to reduce the price of the home to help you cover closing costs or otherwise contribute to the closing costs. Depending on the state of the market and the motivation of the seller, you may get them to agree to cover part of the closing costs. However, if it’s a seller’s market where there is more competition among buyers, it may be unlikely that your seller will agree. Nevertheless, it won’t hurt to try.
6. Choose a ‘no closing costs’ mortgage
You can finalise a mortgage without paying closing costs upfront, which is incredibly helpful if you’re running low on cash. However, the closing costs will be included in your loan, which will result in higher monthly mortgage payments.
7. Close at the end of the month
You can reduce your cash outlay for pre-paid daily charges by closing at the end of the month.
8. Look for discounts and rebates
Some banks offer discounts and rebates for mortgages. Ask your bank if they offer such deals to offset your closing costs.
9. Find title and settlement services early
As mentioned earlier, title and settlement services yield the most significant savings on closing costs if you shop around for them. When you choose to do so, it’s best to start looking early since these services usually require time to research and prepare documents. Look up services online or ask your family and friends for referrals.
For mortgage refinancing
If you are refinancing your mortgage, you will have to shell out money for another round of closing costs. To reduce your total bill, you can ask the lender to waive the appraisal if your house and land have been appraised recently. If you can’t get the assessment waived, you may still be able to save money by getting an automated appraisal instead of a full appraisal.
Almost everything involved in the mortgage application process is negotiable, including closing costs. Do your research, ask questions, shop around, and negotiate—even if you don’t bite off a good chunk from your closing costs, any amount of money you save can be a big help.