As a rule buyers and sellers know what to expect and what they will get in the home buying/selling process. Before going too deep into the process a buyer should consult his mortgage specialist or real estate agent about what the closing costs may be. This also refers to the seller. There are some closing costs that may be negotiated to be paid by the other party. In fact buyers have a higher number of costs to pay. Let’s first see what the closing costs may be for a typical buyer who is getting a home loan:
Appraisal fee is paid to the appraisal company, which confirms the market value of the house.
Origination fee covers the lender’s admin costs. This is usually as much as 1 percent of the total loan. Still sometimes you may find mortgage with no origination fee.
Prepaid interest is what many lenders ask to prepay – this includes any interest which is accrued between closing and the date of the first mortgage payment.
Prepaid insurance is about your first year’s insurance and is often paid at closing. Homeowners’ insurance covers certain types of damages to the house.
Flood certification fee is paid to a third party that determines if the property is in a flood zone. Here you’ll have to buy flood insurance /Buy Flood Insurance at allstate.com/ if your house is located in a flood zone.
Tax servicing fee or escrow deposit for property consists of a two-month property tax and mortgage insurance payments which you are asked to put down at closing. Sometimes this can be negotiated and not paid.
Credit report fee. Credit report and your credit history are always required when applying for a mortgage and often determine the interest rate you get.
Bank processing fee covers the cost for the lender to process your application. Keep in mind that not all lenders charge this fee and for others who charge, it’s negotiated.
Recording fee is charged by your local recording office for the recording of public land records.
Notary fee. During the real estate deals a licensed notary public serves as witness to approve that documents are signed by you. This fee may differ from state to state.
Title insurance: There are two types of title insurances a buyer may have to pay – lender’s policy title insurance and owner’s policy title insurance.
When you understand all those lines, you may apply for a mortgage to another lender with other interest rates and costs. So make sure to check all the available options with your mortgage broker.
For the sellers it may be only a few lines, but the largest amount is paid by the seller: these are the real estate commissions. The amount depends on the home sale price and is based on a percentage.
As any other costs in the real estate, closing costs may be negotiated, and the buyer may ask the seller to pay some of the closing costs. The only problem is how it may affect the chances of your offer getting accepted.
Now let’s check some pretty tips about closing costs:
Tip 1: Make sure to get the GFE and HUD-1 from your Lender
The Good Faith Estimate and Settlement Statement are forms you get for your lender and should check them carefully to compare with the typical closing costs. If there are any differences, make sure to clear out and discuss with the lender and the real estate agent.
Tip 2: When you ask the seller to pay some of the closing costs
Be sure you’re not losing the deal. First you need to understand what exactly the closing costs are. And then make your offer with such sum of money that will cover your closing costs. If you want to buy the house, you should be sure that your offer will be accepted, even if you ask the seller to pay some of the closing costs. Anyway, you are not losing anything if you just ask the seller. The worst thing may be that the seller will refuse and either you will pay yourself or you will have to find another house.
Tip 3: If you’re short on cash money
In case you don’t have enough cash, you may ask the lender to include some of the closing costs in the interest rate. So the lender will pay some part, which will lead you to having a higher interest rate, and the other part will be paid by the seller.
Tip 4: Borrow money
If none of the above mentioned options works, you may borrow some amount of money for closing costs from someone/somewhere else.
Let’s also consider some ways to save on closing costs:
1 Shop around: the more options you have, the more are your chances to get lower closing costs. If you know your local market and have several options, you will be able to choose the best for you.
2 Get to know the market: Know your local market and the neighborhood. Interest rates may differ from area to area. Professional loan officers say it’s very important to understand your area and closing costs associated with it.
3 Paying more points: It’s possible to pay more points at closing in exchange for a lower interest rate. But when mortgage rates are already low, this option is not worth consideration.
4 Negotiate the home price: If the seller is not willing to pay closing costs, you may try to negotiate about the home price. The seller may agree to accept lower purchase price. Remember to keep the total closing costs in mind when you calculate the final home purchase price.
5 Schedule your closing costs: Try to schedule the closing costs payment at the end of the month. If you pay at the beginning of the month, it will mean to have to pay for an entire month of interest; instead, if you pay at the end of the month, you will pay only a small fraction of a month’s interest worth.
By: Hermine Aslanyan
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