Once you’ve figured out how much house you can afford by using a house payment calculator, there are several other expenses involved in making that purchase that you’ll need to consider. Closing costs are some of the most significant, with the national average for a single-family property running $6,087, including taxes.
Closing fees typically range between 3 and 5 percent, but with the skyrocketing prices of homes, it can be significantly more. Fortunately, there are ways to minimize that expense to not pay more than you absolutely have to.
Shop Lenders for the Best Deal
Just like you would shop around for a car, you should shop around and compare home loans to determine which one will charge the lowest closing costs. Get multiple quotes from different lenders. By law, lenders have to give you a form that includes a list of itemized costs within three days of completing your mortgage application. On the second page, it will list the services you can shop around for, which include the survey, pest inspection, title search fees, insurance binder, and settlement agent fees. That means you can also shop around to find lower fees for those to reduce your overall closing costs even more. The lender’s preferred vendors will be listed on the form, but you aren’t required to use them.
As you compare each quote, you’ll want to ensure you have the legally binding loan estimate form and not simply an itemization of fees or a worksheet. If you have a lender you’d prefer to work with, ask them if they’d be willing to match lower closing costs offered by a competitor. Your own bank may be a good source to check as some provide existing customers special incentives like discounts and rebates if you take out a home loan with them. That can potentially save you a significant amount of money.
Aim for an End of Month Closing
The date of your closing makes a difference in the amount you’ll pay. As soon as the purchase of the home closes, you’re legally responsible for making those mortgage payments. If that date is in the middle of the month, typically, you’ll pay the first mortgage payment on the 1st of the following month. Per diem interest fees are assessed between the closing date and the date that the first payment is made, so if you can close as late in the month as possible, those fees will be lower.
When Interest Rates Are Low, Save on Points
If interest rates are lower, there is no reason to pay more for points to reduce your interest rate. Each one costs 1 percent of the loan value, and that can add up quickly. It’s also paid upfront as part of the total closing costs. For every point paid that extends the time, you would have to stay in your home to at least break even.
Ask the Seller to Help
If the market is slow or the homeowner needs to move quickly, there’s a good chance they’ll say “yes” if you ask them to cover at least part of the closing costs. As long as they’re not going to be on the losing end of the deal, and ideally, make at least some profit, sellers are often willing. This isn’t something you’ll want to attempt when homes for sale are scarce, and sellers are getting offers from multiple people.