Purchasing a new home is always an exciting prospect. However, real estate costs such as closing costs are definitely not part of the excitement. Often costing as much as 5% of the home’s purchase price, it’s safe to say that paying closing costs is one of the least favorable parts of the process.
Thankfully, there are several ways that you can save money on real estate closing costs. First, you need to understand how those closing costs are added up.
When you initially start the mortgage process, you are presenting with a Loan Estimate — this details all the estimated costs involved with your mortgage so that you can complete the process without any surprises (and also so you know whether or not you actually have the necessary funds needed to close).
The fees that add up to the total closing cost amount are usually itemized but the Loan Estimate can often be confusing. Here is a list of common fees you might find on your Loan Estimate and what they mean:
- Loan Origination Fee — a fee charged by the lender for handling the administrative duties of your mortgage.
- Application Fee — a fee charged for the review of your mortgage application.
- Point Charge — fees that are charged in order to secure a lower mortgage interest rate.
- Title Search — a fee charged by the title company to perform a search for the house title. Associated fees include lender’s title insurance and owner’s title insurance.
- Home Appraisal — the cost to appraise the value of the home
- Survey — the cost to have the property surveyed to disclose accurate property lines, as well as gas lines, easements, and other important elements associated with the property.
- Attorney Fees — The real estate attorney’s legal fees.
- Escrow Property Taxes
- Prepayment of Homeowner’s Insurance
Additional fees you might see include:
- Flood determination and monitoring fees
- Tax monitoring fee and tax status research fees
- Courier Fees
- Mortgage Insurance Premium — a fee that must be paid upfront on FHA loans if your down payment is less than 20%.
- Rate Lock Fee
While you might not see all of these fees on your Loan Estimate, you can certainly see how even just a few of them can add up to a significant amount. But with a little research and some common-sense tips, you can save some money on some of these real estate closing costs.
Closing costs can vary significantly from lender to lender. Because this is such an important and costly purchase, it recommended that you take the time to research different lenders so that you can compare closing costs and see which lenders offer the best terms. If you like a particular lender but their closing costs are higher than others, you can always ask if they can match another lender’s closing costs.
Some of the fees on the Loan Estimate, such as the appraisal or home inspection, are not written in stone. In many cases you can choose your own home inspector or appraiser. And while you shouldn’t necessarily just go with the cheapest option, it does give you some leeway to save more money on your real estate closing costs.
Many sellers will offer a deal in order to secure a sale, such as lowering the price of the home a bit to offset the cost of the closing, or they might offer to pay for a portion of the closing costs. While the seller isn’t obligated to offer anything, it never hurts to ask.
A little known trick to lower your real estate closing costs a bit is to schedule your closing at the end of the month. Doing so means you won’t have to pay so much in prepaid insurance charges and other prepaid charges.
If mortgage rates are already low, you really don’t need to spend extra on points to get an even lower rate. Quite often, the amount you spend on points just to lower your interest rate a tiny fraction isn’t worth it, especially if rates are already low. Do the math and consider how much you’d actually save per month on your mortgage rate vs. what you’d pay in points now. How long you plan to stay in the home is also a factor in this decision.
Many lenders and real estate professionals prefer wire transfers of the closing costs rather than cashier’s checks. This is because there is a much greater risk of real estate fraud with cashier’s checks.
But paying by wire transfer actually works to your benefit because the fees are much less costly than they would be if you were to get a cashier’s check from your bank. And, by using a secure money transfer platform you can save even more and have the money transferred quickly and easily, without even having to go to the bank at all.
Many real estate professionals utilize an electronic money transfer platform called paymints.io, which uses bank-level security and encryption to ensure money transfers are safe. The fees for using such a platform are very low, helping you to save even more money on real estate closing costs.
Several companies often advertise a mortgage with no closing costs. Sound too good to be true? It often is, as the closing costs are actually wrapped into the mortgage, or you aren’t given as low of an interest rate as you might get with other lenders that do have closing costs. But once again, it doesn’t hurt to take the time to compare the options.
Wrapping the closing costs into the mortgage will cost you more in interest if you stay in the home longer than five years or you don’t refinance, but if you think you might be moving before then, it might be worth it to get a loan with no closing costs.
Be sure to always look over the Loan Estimate thoroughly. If you have any questions about any of the fees and costs simply ask your lender, and they should be happy to provide you with the information you need to make your decision. Be wary of fees that sound similar — sometimes this may be a sneaky way that the lender is charging you twice for the same thing. Reputable lenders won’t do this, of course, but it always pays to be careful when such a big purchase is involved.