How to save on closing costs?

You are right to be wary of closing costs – they typically add at least 2-5% of the purchase price to your sale! Closing costs include all miscellaneous fees associated with finalizing the loan, from attorney and broker fees to taxes and mail delivery. While some of these costs are fixed, there are several smart ways to save money at closing.

Pay attention to your estimates. 

Lenders are required to provide you with a “good faith estimate” of the total cost of your loan. Part of this estimate will include an itemized list of expected fees associated with closing costs. Make sure to review this breakdown thoroughly, so you know exactly what costs are included.

Shop around.

Closing costs can vary widely among lenders. To get the best possible deal, compare estimates from several different institutions. Closing costs also include some services that you can shop for yourself – such as title insurance, property survey, and pest inspection. You may be able to find a better deal than what your lender recommends.

Do the math.

Some loans may offer lower closing costs in exchange for higher interest rates. Use a loan calculator to determine how this may affect your long- or short-term mortgage plans. If you plan to keep the property for a long time, it may be in your best interests to take he higher closing costs now in exchange for lower interest rates down the road.

Close late in the month.

Lenders will usually charge you the interest for the month of the closing. Close as late as possible in the month to reduce the amount of interest you’ll be paying.

Negotiate.

Most fees paid to a third party are non-negotiable. These include broker fees, attorney fees, notary fees, etc. But you’d be surprised at how many of the remaining fees a lender is willing to negotiate – especially if it means the difference between making a sale or not. Remember, you can always threaten to take your business elsewhere. So if any fees look suspicious or redundant, or are simply unclear, speak up! In some cases, the seller may also be willing to pick up some of your closing costs.

The bottom line.

Closing costs are inevitable, so make sure to factor them into your planning. Negotiating closing costs takes time, diligence, and a good deal of willpower. But the hundreds (or even thousands) of dollars you may save in the process could make a significant difference in your wallet – and your future home.

It is a great thing to find out how to get lower closing costs before you go into the closing table. Many companies want the most money out of you and will try to pad their prices with extra costs. The following are guidelines of what you need to do to pay a lower price:

 Shop around for lenders and mortgage companies and find out how much their different services cost.

 Once you receive your Good-Faith Estimate ask the lender to explain these costs to you in more detail.

 Negotiate the costs on the Good-Faith Estimate; usually the easiest costs to negotiate are found in the 1100’s and are the title insurance, title search, title exam, attorney’s fee, and settlement fees.

 Be sure that the costs are the same at the closing table as they were in the Good Faith Estimate and that no new costs have occurred. If they have make the lender describe them in full to you, and do not be afraid to negotiate.

 When refinancing your home try not to close during the first of the month in order to save money on interest.

 Find out how much the county charges to record the deed with them and do not pay more than this on the closing table.

 Mortgage Broker fees are percentages that the Broker charges in order to make money on finding you a loan. There is a way to not have to pay this fee and that is called a “yield spread premium”: the Broker pays this fee and you pay a higher percentage.

 Ask for a receipt of how much the mortgage company paid on the appraisal fee, survey fee, flood certification fee, credit report fee, courier Fee, and abstract or title search fee. Do not pay any more than the price listed on the receipt.

 For the notary fees ask how many pages had to be notarized and how much the charge was per page then see if they will negotiate to this price.

 If the seller purchased the house less than 10 years ago you can get a “reissue rate” instead of paying the full price for the title insurance fee. All you have to do to get the “reissue rate” is have the seller give you with a copy of their existing title insurance policy. This discount is around 40 percent.

 The underwriting fees, document preparation fee, and administrative fee which covers underwriting and document preparation fees are fees that could be taken off the closing price all together. Sometimes these two fees are together and are called the administrative fee.

 The loan origination fee and mortgage broker fee are fees that are tax deductible so you can write this off on your taxes the following year.

 Funding fee/wiring fee is charged by the company for them to get the money to you. This fee might be able to be waived because you are already getting the money.

 Tax service fee/escrow fee can potentially be less costly if you pay for property taxes on your own, instead of having the lender take an amount out every month.

 Shop around at different lenders and mortgage companies for the following items:

 For the closing fee shop around and find the cheapest closing fee around. The settlement fee is the same thing as the closing fee and should not be on the sheet also; if it is you are being charged twice for the same item.

 Title examination fees are fees that you want to shop around for to find the best price. Some lenders charge nothing for this service and some do charge. During a title examination agents analyze the results of the title search to make sure there are no discrepancies on the title.

 Shop around for the release of lien fee because some companies charge while others do not.

Ask the lender if the price could change at the closing table and by how much. Make sure you write down the lender's name that told you this and even better get a paper signed by the person with this information on it to protect yourself against added costs at the closing table.

The average closing costs for a $200,000 mortgage in 2012 was $3,754 according to Bankrate, nearly 2% of the total mortgage cost (though average closing rates can vary by state, from around $3000 to $5500). For many home buyers, closing fees are an unexpectedly large expense at a point where a buyer is extending himself financially.  Here are six smart ways you can keep your closing costs down.

Shop Around:

The most important step to keeping down closings costs is the same as with every product – comparison shop. Mortgage lending is a competitive market and lenders are having a harder time finding qualified borrowers. When looking at potential lenders, it is important to take into account both the loan interest rate and the closing fees when calculating the total loan cost. Some lenders will increase closing fees to decrease interest rates and vice versa.

Negotiate:               

While some parts of closing costs are non-negotiable, like government fees or less negotiable like third party fees, other items like loan origination fees can be negotiated. Origination fees can vary as much as a few hundred dollars between lenders. All the fees charged by the lender should be on the Good Faith Estimate (GFE) provided by the lender.

Bring your Own Insurance:

Generally your lender will have their own suggestions for title and homeowners insurance. You don’t need to take their suggestions, and, just like you comparison shopped for lenders, you should comparison shop for title and homeowners insurance policies. Also, if you’re refinancing, make sure to ask for title insurance at the generally cheaper “reissue rate.”

Avoid Private Mortgage Insurance (PMI):

If you have less than a 20% down payment, your lender will require you to pay PMI until you have paid 20% of the home’s principal value. Although not always avoidable, PMI can be very expensive, generally costing .5% to 1% of the loan amount yearly.  While private PMI can often be paid either at closing or monthly, some PMI providers, such as the Federal Housing Authority, require both a PMI payment at closing and a monthly payment.

You can avoid PMI by paying a 20% down payment, taking a secondary loan to ensure a 20% down payment or by requesting that your lender take out lender paid PMI which will result in a higher interest rate over the life of your loan.

Think About Points:

Unlike other items, points may be something you want to pay extra for at closing.  Often called discount points, you pay upfront at closing for each point. Points cost 1% of your loan and reduce your loan’s interest rate by around .125 - .25% each. The decision to buy points depends on how long you plan on keeping your mortgage for. Also, it is important that when you ask for your GFE, that you ask for it without points so you can more easily compare lender offers.

Avoid Unnecessary Extras and Junk Fees:

Some mortgage companies offer extra items such as “mortgage life insurance” (which is simply an overpriced term life insurance policy). Make sure you read through all the fees, ask your lender what the fees are for, and eliminate any fees that either unneeded or have no purpose.