How to lower your buyer’s closing costs
You’ve saved and saved, and you finally have enough money for a decent down payment. But do you also have enough to cover your closing costs?
The taxes and fees you need to pay when checking out vary widely from place to place. Even estimates from online calculators differ widely.
For example, on a $250,000 30-year loan in my zip code, the Bank of America estimator says closing costs will be nearly $11,000. This represents approximately 4.4% of the loan amount. But NerdWallet’s calculator on the same loan (but not based on a zip code) says the fee will be around $8,150, or 3.6%.
Typically, you can expect to pay between 2-5% of the loan amount. The smaller the loan amount, the higher the percentage, says Keith Gumbinger of mortgage information firm HSH.com.
Even at lower percentages, charges can mount quickly. But to paraphrase Mighty Mouse, help is on the way.
State, local aid
Many state and local governments offer assistance with down payments and closing costs. Most programs are targeted – for example, for first time buyers, first responders or teachers – but others are available for anyone who needs a little help.
Down Payment Resource, a company that tracks some 2,200 down payment and closing cost assistance programs, offers many examples.
For any buyer in Alaska, the public housing finance company offers a grant of up to 4% of the loan amount. The grant does not have to be repaid.
The City of Kenosha, Wisconsin offers a 4% grant that does not have to be repaid as long as the buyer lives in the home for at least five years. (Grant must be repaid if buyer moves out early.)
VSCharges can mount quickly. But to paraphrase Mighty Mouse, help is on the way.
In Somerville, Massachusetts, income-eligible first-time buyers can get assistance with closing costs up to $5,000.
The Virginia Housing Development Authority Closing Cost Assistance Grant provides up to 2% of the purchase price or appraised value of a home (whichever is lower). Beneficiaries must be first-time buyers, unless the property is located in targeted areas.
Oregon’s Home Stretch program offers a $1,000 grant to any buyer who moves to the central part of the state.
Veterans, teachers have options
There are also other programs offered by employers or private organizations. For example, Homes for Heroes, a national network of real estate, mortgage and local business specialists, offers up to $700 per $100,000 purchase price to active military, veterans, teachers, first responders and members of the medical community.
As long as you work with an affiliate agent, HFH will reimburse your closing costs up to 0.7% of what you paid for the home. Plus, if you work with other network professionals, you can save an average of $500 on lender fees, $150 on title services, and $50 on your home inspection. The average total saving after closing is $2,400, according to the company.
There are also other ways to save. While some charges can’t be changed (prepaid interest and taxes, for example), you may be able to reduce others:
First, ask the seller to pay some or all of your closing costs. Note: This probably won’t work in today’s seller market. But when the tide turns, it’s a good ploy.
Second, some lenders have closing cost assistance programs, so ask yours what may be available. Through its America’s Home Grant program, Bank of America provides closing cost grants of up to $7,500 to its borrowers, in addition to a down payment grant of up to $10,000.
Third, you can try to negotiate with each service provider. For example, if you’re working with a mortgage broker, ask if they’ll lower their commission a bit. Ask your real estate agent the same.
Insurance offers further savings
If your down payment is less than 20% of your loan amount, you’ll need mortgage insurance: a policy that you pay for, but which covers the lender if you don’t make your payments. This adds between 0.55% and 2.5% of the loan amount to the cost of your mortgage. If there is an upfront cost, ask if you can incorporate that amount into the mortgage. Your monthly payments will be higher, but you’ll need less cash at closing.
Buyers will also ask you to purchase title insurance – again, to protect their investment if a defect in title is discovered (a long-lost relative suddenly appears, perhaps, or a signature was forged 20 years ago). years). Again, shop around. Lenders generally don’t care which company you use, as long as they are protected.
At closing, you will be offered the option of purchasing your own title policy – one that protects YOUR interests – and it’s a good idea to do so. But if you shop ahead, you might be able to lower the price.
You’ll need a home insurance policy in place when you reach the closing table, so look for the best rates.
If your state requires an attorney at the closing table, shop around and compare rates. But don’t necessarily jump to the lowest price – you might be missing out on decent representation.
lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous shelter magazines and housing industry and housing finance publications. Readers can contact him at [email protected]