8 Ways To Save on Closing Costs
Most of us have at one point or another used a mortgage calculator to try to plan for our next purchase. But how many of us have thought about what closing costs would look like? It's usually not until you see the Loan Estimate that you start thinking about how to cut costs. Here we take a look at 8 ways to save on closing costs.
Compare Loan Estimate Forms
The Loan Estimate is an important document because it outlines everything that you could be paying the lender. When going over each item, make sure to ask what each one covers and why it costs as much as it does. This will allow you to identify padded or unnecessary fees more easily while also keeping your eye out for hidden ones like those of similar names - which may mean they are charging twice for something that should only be charged once! A lender who can't explain a fee or pushes back when queried should be considered as a red flag. Make them walk through all of your expenses with you but keep in mind, it’s not uncommon for rates to fluctuate between pre-approvals and closings.
Know where the savings are
The bottom of the first page of the Loan Estimate form shows the total closing costs and cash needed to close the loan. The heart of your savings is Section C, page 2: “Services You Can Shop For.”
Of these fees, you stand to save most on the priciest services: title insurance and settlement services, which are often combined. Comparison shopping among pest inspectors or surveyors might not uncover great price differences, but it doesn’t hurt to ask! Most people know they can shop around for mortgage rates; however, that should also be applied when looking into any other expensive service one is considering purchasing.
Push back on lender fees
Once you have a handle on the fees that your lender wants to charge, it's time for some good old-fashioned negotiating. Ask your lender to remove the more obscure fees. Also, be sure to request the Closing Disclosure form as soon as it’s available, and then compare what’s on the Closing Disclosure to what’s on the Loan Estimate. If you find any discrepancies, ask your lender to explain them.
Keep an eye out for excessive processing and documentation fees in the following areas:
Rate lock fee
Loan processing fee
Shop for title and settlement services
If you borrow from your lender, the title services and related insurance offered by them are capped at no more than 10% of what they were on the estimate. However, if you decide to use a company not listed in their Loan Estimate for these things, then there is absolutely zero restriction as to how much it can increase!
Not only can you save money by playing the part of a savvy shopper, but if you compare lender to lender for fees and third-party services like title companies or homeowners insurance policies before choosing your loan provider, you might be surprised with how much more affordable it could get.
Ask the seller to pay some or all of the closing costs
Some sellers will be willing to negotiate on the price to help with the cost of closing. Alternatively, some sellers may agree to cover some of your closing costs. It all depends on how motivated they are, how long the property has been on the market and the state of the market at this time; but there’s usually always room for negotiations, so it’s worth taking a chance at asking.
Be sure to speak with your agent for their advice on your situation. Also, keep in mind that rather than asking for certain services or items to be paid off by the seller it's best if you request a specific dollar amount and make sure your lender approves first as some programs have limits on what sellers can contribute based on loan type.
Delay your closing
With a new home loan, you need to prepay interest that accrues from the closing date to the end of each month. If your lender is flexible with when they close loans, try scheduling it at the last possible second so as not to pay for any unnecessary months where no interest has accrued yet.
Save on points
Homeowners and buyers have the option to pay discount points in exchange for a lower interest rate. However, experts say paying points may not be worth it when mortgage rates are already low. Each point will cost 1% of the loan value, so paying for points can add up fast. And you pay that money upfront as part of the closing costs. For each point you buy, you’ll have to stay in the home for longer if you want to break even. Speak with your lender about whether or not paying points makes sense based on your situation.
A Consolidation, Extension and Modification Agreement, or CEMA loan is a popular option for New Yorkers that can reduce the cost of refinancing your mortgage. A CEMA loan allows you to pay recording taxes on only what's owed in interest between your current principal balance and the new amount from which it will be financed.
In New York, taxes are collected for recording any new mortgage with the state. Along with the state tax, New York City, Yonkers, and several counties apply an additional local tax on recording a mortgage. In NYC, this tax ranges from 1.8% – 1.925% of the mortgage. If you’re refinancing in New York, you could avoid paying mortgage recording tax and save yourself a chunk of money.
As you can see, there are many different ways you can save on closing costs. It takes some patience and time to research different options, but at the end of the day, it can be quite worthwhile. Be sure you understand each item, and if you don't, speak up. Think of it this way, you wouldn't go out and buy the first TV or car you see. Rather you would spend time searching for the best deal. The same should apply when dealing with closing costs.