Real estate transactions are complicated for several reasons. They involve legal, financial, and emotional aspects – many of which are intertwined together.
In order to make sure a real estate transaction involves a smooth transfer of money and ownership, there are a number of closing costs associated with a normal deal. While no single fee, payment, or tax is exuberant, they can compound and become rather expensive. Knowing how to lower your closing costs could be the difference between spending more than you have to and staying within a reasonable budget.
Lenders are in the business of making money. While they make money on the interest they charge borrowers, they also earn revenue through closing costs and fees. And like any business, there will be some variance from one lender to the next.
On average, you’ll find that homebuyers typically pay between 2 and 5 percent of a home’s purchase price in closing fees. On a $350,000 house, that means you’re spending anywhere between $7,000 and $17,500. If you’re thinking that this seems like a pretty wide gap, you would be right. There’s a lot of wiggle room and you have plenty of opportunities to lower your closing costs.
When it comes to closing costs, it’s easy to overlook some things. You’re ready for the process to be over and don’t really want to rock the boat or cause any delays. But to just accept the closing costs isn’t smart. You could potentially save thousands of dollars – money that could be converted into home equity – just by digging a little deeper.
Here are some tips and strategies that may allow you to lower your closing costs:
When you shop for an internet service, what’s one of the first things you do? If you’re like most, you go online and research your options. Once you have three or four choices, you compare costs. You do the same thing with cars, TVs, and lawn care services. So why wouldn’t you get multiple quotes when it comes to closing costs?
First off, there are a handful of services included in your closing costs that you can choose. For example, the borrower generally has control over things like surveys, title searches, radon testing, and pest inspections. Secondly, you can compare lenders and see how their loan processing fees differ. With a little diligence, you may be able to save thousands.
“Once you have a handle on the fees the lender wants you to pay, you can start negotiating,” SmartAsset suggests. “Ask for more obscure fees to be knocked off the final price tag. Ask your lender to give you what’s called the Closing Disclosure form (detailing your final closing costs) as soon as it is available. Compare what’s on the Closing Disclosure to what was on the Loan Estimate and ask your lender to justify any discrepancies.”
It’s especially important that you negotiate fees that you don’t understand – or at least ones seem hidden in between other line items. For example, vague names like “funding fees” or “delivery fees” tend to be empty costs. If you push back on them, the lender could remove them altogether.
Real estate deals are all about negotiation. In fact, almost anything can be negotiated. If the closing costs are a little higher than you want, you may be able to get the seller to pitch in.
In a seller’s market, like the one we currently have, it’s a little harder to get the seller to cover closing costs without offering something in return. Make sure you’re prepared to compromise in another area.
One little trick you can use to save some money at the closing table is to close near the end of the month, rather than at the beginning. This is because the buyer prepays on the interest that accrues from the closing date until the final day of the month.
If you close on May 7, for example, you’ll owe 24 days worth of interest. However, by closing on May 28, you’ll owe just three days worth of interest. If money is tight, this can make a difference.
Depending on the factors involved, you might be able to secure a no-closing cost mortgage. As the name suggests, this allows you to close without paying any of the normal upfront fees.
“Typically, when a lender offers a deal like this, it does end up costing you in the long run: The lender may charge you a higher interest rate on the loan for not paying closing costs, or the lender may wrap the closing fees into the total mortgage owed, in which case you end up paying interest on the closing costs,” Zillow explains.
In a society that loves debt, this might sound crazy, but you can always save up and buy a house in cash. It’ll take most people a number of years to do this – and you probably won’t be buying your dream house – but no mortgage means you don’t have to pay underwriting costs and loan processing fees.
There are still some fees associated with closing, even if you pay in cash. For example, there will always be property taxes, attorney fees, and insurance. However, these are usually quite affordable in the grand scheme of things.
Real estate transactions are anything but straightforward. They involve a lot of moving parts and you need to make sure you have the right team of professionals on your side. At Green Residential, we know the Houston real estate market like the backs of our hands and would love to serve you in any way we can.
For more information, please contact us today!
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