You've discovered your ideal house, reached an agreement with the seller on a price, and received a tentative financing commitment from a lender. However, as the closing date approaches, you're concerned about growing expenses and those pesky closing charges, and you're searching for methods to eliminate or at least mitigate some of these costs.
Dissect your loan estimate form.
The lender is expected to provide you with a loan estimate form within three days of submitting a mortgage application, but there's nothing stopping them from doing so sooner if you ask. This document contains an itemized breakdown of charges, including the amount of your loan, the interest rate, and your monthly payments. On page two, there is a section titled "Services you may shop for," which includes the following:
Inspection of pest
Survey
Fees for title searches and settlement agents, as well as the insurance binder
Although the vendors named on the form may be your lender's recommended suppliers, you are not obligated to use them, and your lender is required to provide alternatives. You can look around for lower-cost suppliers for certain services on your own; but, if your independently chosen vendor changes its pricing before the closure date, you will be responsible for any increase. If you go with a lender-provided vendor, the price can't fluctuate more than 10% from the initial quotation.
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Don't forget about lender fees.
Loan fees, such as those for origination and underwriting, are charged by many lenders. You may not be able to get out of them, but you can try to get them modified by your lender. It's preferable to ask for a discount and be turned down than to never ask.
Comparing offers from different lenders is also a smart idea. If possible, obtain various loan estimate forms from different lenders to evaluate before submitting your application. Because price varies so rapidly, receive these quotes on the same day and at the same time for a more accurate comparison.
Understand what the seller pays for
Who is responsible for what portion of the closing costs? While the buyer is responsible for part of the closing fees, such as the real estate agent commission, the seller is usually responsible for the rest. You can ask your seller to contribute to your percentage, which will appear on the loan estimate form as "seller credits." Keep in mind that in a market like the one we're in right now, when sellers have a lot more power, this method could not work.
Consider a no-closing-cost
Whether you don't have the funds to cover closing fees, see if your lender has a no-closing-cost alternative, which normally comes with a higher interest rate. This saves you money at closing by not requiring the funds upfront, but it ultimately costs you more in the long term since the lender essentially absorbs these costs while you pay a higher rate.
Look for grants and other forms of assistance
For qualifying homebuyers, several towns, counties, and states provide financial help programs. With this state-by-state guide to homebuyer programs, you can learn more about your options. Many are designed to assist first-time homeowners with down payments and closing fees. Others may require you to qualify by purchasing a HUD-owned property, completing homebuyer education, or working in a specified vocation, such as a fireman or teacher.
Close at the end of the month if possible
When you close at the end of the month, you lower your cash expenditure at closing by limiting the number of days the per diem interest is applied before your first mortgage payment is due, which is normally on the first of the month.
Simply multiply your loan amount (the entire amount funded) by your interest rate — for example, if your rate is 3%, multiply by.03 — to get your yearly interest expenditure. Then multiply that number by 360 to get your daily interest rate (lenders compute interest on a 360-day basis, not a 365-day basis). Multiply that amount by the number of days left in the current month plus the first day of the next month. This sum will be substantially lower if your loan is funded towards the end of the month rather than in the middle.
Inquire about special offers and rebates.
Have you ever gone to buy a car and discovered incentives you weren't aware of? Mortgage loans may be similar since some lenders give incentives to entice customers. These refunds may save you hundreds of dollars on a variety of expenses - easy money for the time it takes to ask. You never know what you'll come upon.
Conclusion
You won't be startled by the final sum if you've budgeted for mortgage closing charges ahead of time. Don't take your lender's quote at face value, and don't be afraid to shop around for estimates from other lenders early on in the process. You can also try to bargain some of these fees, possibly enlisting the seller's aid with others, and look into state or local programs for further closing cost assistance.