Understanding Closing Costs and How to Save Money
Buying a new home may be an exciting prospect, but before you sign on the dotted line, you should understand that buying a home will cost you more than just the sticker price. Some additional costs you will need to know about are closing costs: these are the essential service fees you’ll need to cover in order to finalize the purchase of your new home. This article will give you some helpful tips on how to stretch your closing cost dollars and save you money.
UNDERSTANDING THE BASICS OF CLOSING COSTS
By most estimates, closing costs may add an additional 2% – 5% to the final purchase price of your home. These necessary service fees are charged by a variety of professionals involved in the important process of finalizing the purchase of your home, including those that come directly from the mortgage lender, as well as from several third parties.
ORIGINATION FEES BY THE LENDER
• Loan origination
• Mortgage application
• Document preparation
• Broker, originator, or lender fees
• Processing
• Tax service
• Underwriting
• Wire transfer
• Escrow fees
• Points fees
• Interest on the loan
THIRD-PARTY FEES
• Inspections
• Appraisals
• Attorney’s fees
• Credit report
• Flood certification
• Title search & title insurance
• Property survey
• Employment verification
• Certificate of occupancy
• Real estate taxes
• Private mortgage insurance
• Homeowner’s insurance premium
UNDERSTANDING THE BASICS OF CLOSING COSTS
By most estimates, closing costs may add an additional 2% – 5% to the final purchase price of your home. These necessary service fees are charged by a variety of professionals involved in the important process of finalizing the purchase of your home, including those that come directly from the mortgage lender, as well as from several third parties.
ORIGINATION FEES CHARGED BY THE LENDER
• Loan origination
• Mortgage application
• Document preparation
• Broker, originator, or lender fees
• Processing
• Tax service
• Underwriting
• Wire transfer
• Escrow fees
• Points fees
• Interest on the loan
THIRD-PARTY FEES
• Inspections
• Appraisals
• Attorney’s fees
• Credit report
• Flood certification
• Title search & title insurance
• Property survey
• Employment verification
• Certificate of occupancy
• Real estate taxes
• Private mortgage insurance
• Homeowner’s insurance premium
Keep in mind that the particular closing costs for which you will be responsible will depend on where you’re purchasing, the service provider you’ve chosen to work with, and the sales contract terms. And remember: your lender is required to provide a list of estimated closing costs before your closing date.
Generally, it’s a good idea to involve a lawyer during the homebuying process in order to ensure that you cover all of your bases. These attorney fees will be your responsibility,
as well.
STRETCHING YOUR CLOSING COST DOLLARS
There are several ways to keep your closing costs to a minimum. Follow these tips to make your money go further during the final stages of buying your new home.
• Compare offers from lenders: Before you select a mortgage lender, be sure to do your homework by asking about more than just interest rates. Many lenders provide incentives in the form of lower closing costs, which can save you more than you would with a lower mortgage interest rate. Get several offers and compare them on every closing cost to get an accurate picture of which one is the most favorable.
• Negotiate for third-party services: Don’t be afraid to ask for a reduction in fees from third-party service providers, such as your attorney, property surveyor, appraiser, inspector, and so on. It doesn’t hurt to ask, and often these providers are willing to lower their rates to get your business.
• Provide a larger down payment: Often when you put down less than 20%, you’re required to pay extra mortgage insurance premiums, depending on the size of your down payment. You could save big on insurance fees by putting down more than 20%.
• Adjust points levels: Usually calculated as 1% of the amount that you are borrowing, points are a way of buying down the interest you will pay on your mortgage. If you need to save up-front on closing costs, lower the number of points you plan to purchase. Conversely, if you want to save more on interest for several years, increase the number you buy.
• Opt for monthly insurance premiums: In the past, lenders required you to pay a one-year premium for mortgage interest at the time of closing plus two months towards next year’s premiums. However, today you can opt to pay monthly instead, which can significantly lower your up-front costs.
Knowing what closing costs you have to pay and comparing offers from several companies are both a great way to make your homebuying experience more affordable and enjoyable. And once you have closed on your new home, you can be proud of yourself for taking the time to get informed on how to save money on closing costs. Think of your savings as your first housewarming present—welcome home!