The process of buying a home can be a complicated one — and one that often comes with unexpected expenses along the way. For someone buying a home for the first time, the first jolt is usually when the mortgage company gives the buyer an estimate of their closing costs. Closing costs refer to the cash (besides a down payment) you need to bring to the table to complete the sale and sign off on the mortgage loan. Closing costs consist of lender fees, attorney fees, title fees and a long list of other fees required to process your purchase. Actual amounts can vary widely, but experts generally estimate them at around 3 percent of the loan value. That can really add up, especially with a larger home!
Fortunately, there are some ways to mitigate these costs. Let’s look at four ways you may be able to reduce or even eliminate your closing costs.
1. Shop around
Not every lender will charge the same amount of closing costs, so check the rates for several lenders and see if you find a marked difference in these costs. Occasionally, you can dive even deeper, comparing things like title insurance fees. If your lender gives you the freedom to choose a preferred title company, for example, you might ask to use a title company who is willing to discount their rates for you.
2. Consider paying fewer or no points
Many lenders offer you a lower interest rate in exchange for paying “points” – additional fees paid directly to the lender. This is a trade-off to get a lower interest rate (and a lower mortgage payment), but those points can really inflate your closing costs. Sometimes it’s not worth paying the extra points when interest rates are low, so consider reducing your closing costs by taking the higher interest loan. Your mortgage payment might be slightly higher, but you’ll have to bring less money to the closing table.
3. Negotiate with the seller
Both buyers and sellers have closing costs with a home sale, but sometimes a motivated seller is willing to absorb the buyer’s closing costs to seal the deal. See if your seller has any wiggle room to help you out. They may either pay the closing costs directly, or they may reduce the sale price of the home proportionately.
4. Close at the end of the month
Part of your closing costs include pre-payment of any interest and insurance premiums that will accrue between the closing date and the first month your mortgage comes due. If you close at or near the end of the month, these prorated amounts become null and are eliminated from your closing costs.
- Bonus tip: Be sure to double check the numbers on your estimated settlement and your final settlement statement (which you receive a few days before closing), and make sure there are no unexpected added fees. Ask questions about any fees you don’t understand, and look for possible mistakes or repeated fees.
When you’re ready to search for your new home in Atlanta, we are here to help! Give Atlanta Fine Homes Sotheby’s International Realty a call at 404.948.4812.