Scraping up that hefty down payment can be challenging enough, but after tacking on the closing costs, the total cash you’ll have to come up with means it can even longer to save the amount you need to actually get the keys to the house.
If that’s the situation you’re in, you might wonder if there’s anyone to avoid paying those high closing costs which run anywhere from 2 to 5 percent of the loan cost, including mortgage insurance and property taxes.
While cutting them out entirely isn’t possible, there are ways to minimize costs through negotiation and other methods, including these.
Ask the Seller to Cover the Cost
If the homeowner is highly motivated to sell, perhaps he or she needs to move quickly or the house has been sitting on the market for a while, you might ask them to cover or at least contribute to the closing costs. Using a seller closing costs calculator, if they find they can still make a profit, or at least not end up on the losing end of the deal, it may be possible. Of course, you don’t want to take this approach when there aren’t a lot of homes on the market and sellers are likely to be getting multiple offers.
Compare and Negotiate with Lenders
Just like you would when you buy a car, you should shop around for the best lender with the lowest possible closing costs. You’ll want to compare quotes from several different lenders, getting legally binding loan estimate forms. If you have a preferred lender you might ask if they’ll be able to match lower closing costs another lender offers.
In some cases, you may be able to negotiate a home loan that doesn’t have any closing costs so that you won’t have to pay them upfront, but keep in mind they’ll have to be paid somehow. Usually, you’ll get a higher interest rate, or the closing costs will be bundled into the total cost of the mortgage. You can also inquire about a fee reduction, credit or waiver to at least offset some of the closing costs.
Aim for an End of Month Closing
Once the purchase of your home closes, as the homebuyer you’ll be legally responsible for repaying the mortgage. If that loan closes at mid-month, you’ll usually have to make your first mortgage payment on the first of the following month with per diem interest fees assessed between the date of closing and the date of your first payment. If you can close closer to the end of the month you’ll be able to reduce those fees.
You can determine the potential savings by multiplying your interest rate by the loan amount. Divide the annual interest rate by 365 to figure the daily interest rate and then multiply that by the home loan amount to get the daily interest amount. The number of days between closing and that first payment is then multiplied by the daily interest amount to determine the total prepaid interest.
Discounts, Rebates, and Other Programs
If you’re a military member, veteran, or a member of a union, you may get financial assistance when buying a home, including discounts on closing costs. Another option is rebates and discounts provided by banks to entice customers. While these are unlikely to cover everything, it may help you buy that home a little faster.