You’ve found the house you want, negotiated with the seller, and you’re ready to finalize the sale and make the move into your new home. But while you’re going through the home buying process, it’s important to be aware of all costs associated with closing the deal.
Closing costs can add additional fees of up to 3% to 6% of the price of your home. That could mean a potential $15,000 more on a $250,000 home for items such as closing fees, insurance, property taxes, escrow accounts, title insurance, and home inspections.
With correct planning however, there are ways to save some money during the closing process. Here are some strategies to explore before making that final commitment.
Pay Attention to Your Loan Estimate
When you’re applying for a loan to buy property, your lender will provide you with a Loan Estimate which details your loan terms and projected payment schedule. This document also gives you a good faith estimate on expected closing costs. While the amounts listed will be approximate, a Loan Estimate is still a helpful way to get an idea of how much your closing costs will be. If you are not comfortable with the amounts detailed in the Loan Estimate, you may want to consider other loan options or lenders.
Compare Lenders
Even if you’re leaning toward one particular lender, it can be helpful to evaluate others. You can receive a Loan Estimate from multiple lenders to compare rates, loan terms, closing costs, and fees. While you shouldn’t make your decision solely based on price, it’s smart to compare offers to be sure you are investing your money properly with a lender you trust.
You should also be aware that in some cases, a lender may initiate a loan with you, and then sell it to another financial institution down the road. Just because you originate your loan with one lender doesn’t always mean that’s who will continue to service it.
Some lenders may also allow you to add your closing fees to your mortgage balance, so you don’t have to pay them in a lump sum upfront. This could be helpful if you’re not able to come up with the money to cover those fees at closing, but it is important to keep in mind that adding them to your mortgage balance means you’ll be paying interest on them over the life of the loan.
Some banks may also offer rebates to customers. When choosing a lender, evaluate any available incentives that could help reduce your closing costs.
Get Multiple Quotes for Inspections and Certifications
You may not know that you can shop around for many of the inspections and certifications that are required when buying a home. While your real estate agent, lender, attorney, or closing agent may have recommendations about which companies to use, in many cases, you don’t have to go with who they suggest. By evaluating prices from a few different companies, you can help to ensure that you’re getting a price that fits your budget.
Services you may consider shopping around for include:
• Home Inspection
• Property Search
• Title Search
• Title Binder
• Title Insurance Policy
• Pest Inspection
Negotiate More than the Price of the House
When buying or selling a home, there are often other things besides the price of the home that can be negotiated. Depending on the state of the market, you may be able to split costs or ask the seller to cover them if the market is favoring the buyer. However, keep in mind that in a tight real estate market, or when the sellers have multiple offers, they’ll be less inclined to negotiate or split costs.
Whether you’re getting your loan through a financial institution or mortgage broker, some fees may also be negotiable. While it’s normal to see origination fees or underwriting fees, look closely to see if there are other line items that might be eliminated or that you are able to opt out of. Delivery fees, courier fees, and other miscellaneous fees can sometimes be negotiated or worked around. This could be something to discuss when you are comparing multiple lenders during the process.
Double Check Your Closing Documents
After you’re approved for your loan, you’ll receive a Closing Disclosure form which will have your final loan terms and costs. It’s important to compare your Closing Disclosure to your Loan Estimate to ensure everything looks right. While the two documents don’t need to be identical (many lenders play it safe by overestimating fees and costs on the Loan Estimate, when in actuality those fees may be lower in the final Closing Disclosure), generally the costs listed in your Closing Disclosure should not be higher than what you were quoted in the Loan Estimate.
At closing, you’ll also receive a HUD-1 Settlement Statement and a Truth in Lending disclosure. These totals should match your Closing Disclosure. If they don’t, you should get an explanation before signing.
Being aware of the costs associated with closing on a house before you begin the process can help give you a better understanding of how much you can really afford to spend, and can prevent any last minute surprises. Knowing what to consider ahead of time can help you shop around for the best loan, and ensure you’re not overpaying for the various fees involved with a home purchase. For additional Mortgage Resources or to schedule a consultation with a BankFive home lending expert, contact us today.
Closing costs can add additional fees of up to 3% to 6% of the price of your home. That could mean a potential $15,000 more on a $250,000 home for items such as closing fees, insurance, property taxes, escrow accounts, title insurance, and home inspections.
With correct planning however, there are ways to save some money during the closing process. Here are some strategies to explore before making that final commitment.
Pay Attention to Your Loan Estimate
When you’re applying for a loan to buy property, your lender will provide you with a Loan Estimate which details your loan terms and projected payment schedule. This document also gives you a good faith estimate on expected closing costs. While the amounts listed will be approximate, a Loan Estimate is still a helpful way to get an idea of how much your closing costs will be. If you are not comfortable with the amounts detailed in the Loan Estimate, you may want to consider other loan options or lenders.
Compare Lenders
Even if you’re leaning toward one particular lender, it can be helpful to evaluate others. You can receive a Loan Estimate from multiple lenders to compare rates, loan terms, closing costs, and fees. While you shouldn’t make your decision solely based on price, it’s smart to compare offers to be sure you are investing your money properly with a lender you trust.
You should also be aware that in some cases, a lender may initiate a loan with you, and then sell it to another financial institution down the road. Just because you originate your loan with one lender doesn’t always mean that’s who will continue to service it.
Some lenders may also allow you to add your closing fees to your mortgage balance, so you don’t have to pay them in a lump sum upfront. This could be helpful if you’re not able to come up with the money to cover those fees at closing, but it is important to keep in mind that adding them to your mortgage balance means you’ll be paying interest on them over the life of the loan.
Some banks may also offer rebates to customers. When choosing a lender, evaluate any available incentives that could help reduce your closing costs.
Get Multiple Quotes for Inspections and Certifications
You may not know that you can shop around for many of the inspections and certifications that are required when buying a home. While your real estate agent, lender, attorney, or closing agent may have recommendations about which companies to use, in many cases, you don’t have to go with who they suggest. By evaluating prices from a few different companies, you can help to ensure that you’re getting a price that fits your budget.
Services you may consider shopping around for include:
• Home Inspection
• Property Search
• Title Search
• Title Binder
• Title Insurance Policy
• Pest Inspection
Negotiate More than the Price of the House
When buying or selling a home, there are often other things besides the price of the home that can be negotiated. Depending on the state of the market, you may be able to split costs or ask the seller to cover them if the market is favoring the buyer. However, keep in mind that in a tight real estate market, or when the sellers have multiple offers, they’ll be less inclined to negotiate or split costs.
Whether you’re getting your loan through a financial institution or mortgage broker, some fees may also be negotiable. While it’s normal to see origination fees or underwriting fees, look closely to see if there are other line items that might be eliminated or that you are able to opt out of. Delivery fees, courier fees, and other miscellaneous fees can sometimes be negotiated or worked around. This could be something to discuss when you are comparing multiple lenders during the process.
Double Check Your Closing Documents
After you’re approved for your loan, you’ll receive a Closing Disclosure form which will have your final loan terms and costs. It’s important to compare your Closing Disclosure to your Loan Estimate to ensure everything looks right. While the two documents don’t need to be identical (many lenders play it safe by overestimating fees and costs on the Loan Estimate, when in actuality those fees may be lower in the final Closing Disclosure), generally the costs listed in your Closing Disclosure should not be higher than what you were quoted in the Loan Estimate.
At closing, you’ll also receive a HUD-1 Settlement Statement and a Truth in Lending disclosure. These totals should match your Closing Disclosure. If they don’t, you should get an explanation before signing.
Being aware of the costs associated with closing on a house before you begin the process can help give you a better understanding of how much you can really afford to spend, and can prevent any last minute surprises. Knowing what to consider ahead of time can help you shop around for the best loan, and ensure you’re not overpaying for the various fees involved with a home purchase. For additional Mortgage Resources or to schedule a consultation with a BankFive home lending expert, contact us today.