You don’t have to accept that closing costs are going to cost a fortune.
Closing costs can be very high when buying a home.
In fact, according to research from The Ascent, you will typically pay 2% to 5% of the mortgage amount in closing costs. And in 2020, the average closing costs were actually $ 5,749. This is a lot of money on top of the other expenses related to the property.
The good news is that there are ways to reduce that upfront expense. Here are five techniques you can try to keep more money in your pocket when you get a mortgage.
1. Shop carefully for a lender
Some lenders charge higher loan origination fees than others, and some don’t charge these fees at all.
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You should get quotes from several mortgage lenders. When you do, don’t just look at the interest rate. Look at both the mortgage rate and fees – and find a lender who won’t charge you a fortune up front or over time.
2. See if the fees are negotiable
In some cases, mortgage lenders may be willing to work with you and negotiate fees to capture your business.
Take a close look at all the fees and see if the lender is willing to cut costs or drop any of them. There is a lot of competition these days among mortgage lenders, so it never hurts to ask.
3. Negotiate with sellers to cover some of your costs
Sometimes sellers can provide closing cost credit, which would mean the seller will reimburse you at closing to cover some of your upfront costs.
You will need to negotiate this with the seller as part of your purchase contract when you make an offer. The seller may not be willing to do this in a competitive market if he has multiple interested buyers. Lenders also generally have restrictions on a seller’s credit amount.
Still, if you’re really worried about finding cash for closing costs, you might want to offer this as an option when you make an offer to buy and see if any sellers bite.
4. Buy a cheaper house
Closing costs can be affected by the price of the house. Title insurance fees, appraisal and survey fees, transfer taxes, and a host of other fees can all be more expensive for higher priced homes.
If you choose a cheaper home, not only will you reduce some of those costs, but you should also be able to put down less money for a down payment. In this case, you may have more cash to cover your closing costs.
5. Plan your fence strategically
Closing costs generally include the daily prepaid interest to cover the interest costs that will be incurred on the loan between the time you close the house and the time the first payment is due.
If you plan your purchase strategically for the end of the month, you can minimize the amount of prepaid interest you owe, which would lower the fees you owe.
Taking one or all of these five steps can make a big difference in how much you have to pay to close a house. Remember, however, that closing costs are just the beginning of the expenses you will have after you own your property. If you’re struggling to find the funds to pay for them, consider whether you’re financially ready to buy before committing to buying a home.