Closing costs are fees associated with the home-buying process. They vary from lender to lender, but they can be as low as 2% of the property’s value or as high as 8%. The more expensive the house you want to buy, the higher the closing costs that you need to deal with naturally become.
Since they generally need to be paid up front, these out-of-pocket expenses can make your purchase thousands or tens of thousands costlier.
Fortunately, there are ways to keep them to a minimum. Any reputable mortgage lender in Portland or any major city will recommend these strategies:
A lender is required by law to provide you a Good Faith Estimate, which is an itemized list of fees applicable to your chosen mortgage. Get an estimate from as many financial institutions as you can, and compare the costs each of your prospective lenders charges.
Negotiate to Lower Some Costs
Closing costs are not equal. Some are property-related while others are loan-specific. Many lenders are open to negotiation, so don’t hesitate to ask. They may be willing to adjust the fees they’re charging themselves.
Furthermore, you may be lower some of the charges if you hire your own professionals. You may be allowed to find your own home inspector or a certified appraiser to drive your costs down.
Ask the Seller to Split the Bill
You can also ask the seller to pay a portion of your closing costs. This strategy, called a seller concession, is feasible when the other party is desperate enough to find a buyer and get the property sold ASAP.
The usual offer that a buyer makes is asking a seller to shoulder 3% of the closing costs. It’s not a lot, but it can go above $1,000 if your lender charges several fees.
Just a word of caution, though, the other party may reject your offer and deal with another buyer that doesn’t demand a seller concession. Tread carefully when you consider this option.
Opt for a No-cost Mortgage
You might encounter a loan advertised not to come with closing costs. Such a program is called a no-cost mortgage.
Of course, this type of loan isn’t without closing costs. The difference with it, though, is that you are not required to pay upfront fees. The lender to take care of them on your behalf in exchange for increasing your interest rate to some extent.
Apart from convenience, cost-effectiveness is the other benefit this strategy promises. But then again, everyone’s situation is different. Do the math to determine if you will actually save with this option over time.
Explore Different Sources to Pay in Cash
If your bank account isn’t green enough to pay for your closing costs up front, use funds from other sources. A lender usually allows retirement savings or gifts to be used to cover the fees.
You shouldn’t, however, acquire a new debt to have enough money to settle your closing costs. This practice is frowned upon by lenders, can decrease your debt-to-income ratio, and can lower your credit score.
There’s no escaping closing costs, but you can reduce your financial obligation with a little creativity. Understand all of the charges, and consider which strategy makes sense to your situation.