April 15th, 2020 11:25 AM by Jackie A. Graves, President
You’ve found your dream home, settled on a price with the seller
and secured a tentative commitment from the lender on a mortgage, You can
almost feel the keys to the home in your hand.
Yet, as you approach the closing, you’re concerned about
mounting expenses and are thinking about those pesky closing costs. You’d like
to leave the closing with your shirt, so you’re looking for ways to make some
of these costs go away–or, at least, to reduce the damage.
The answer is to negotiate.
Charged by the lender and other vendors, closing costs often
total 2 to 4 percent of the home price. This adds up to thousands.
Haggling over the sale price of the home is one thing, but can
you talk down closing costs? Yes–if you prepare properly.
The lender is required to give you this form within three days
of completing a mortgage application. But there’s nothing keeping them from
giving it to you sooner–so ask for it.
This form includes an itemized list of costs. Here’s
an example from the Consumer Financial Protection Bureau. It includes
your loan amount, interest rate and monthly payments. On page two it has a section
called “services you can shop for,” including:
The vendors listed on the form are your lender’s preferred
vendors–but you don’t have to use them (though lenders prefer that you do
because they have various connections with them and steer business to each
other). Instead, you can shop around to find lower fees.
Lenders charge loan costs, including those for loan origination
and underwriting. You might not be able to get out of them, but you can try to
get your lender to knock them down. There’s no harm in asking. It’s better to
ask for a discount and get denied than to not ask at all.
It’s also a good idea to compare offers from other lenders. If
you can get an estimate before you submit your application, try to get
different loan estimate forms from different lenders to compare.
Who pays what closing costs? While the buyer, will pay some of
the closing costs, the seller is typically obligated to pay others.
Sellers usually pay the real estate agent commission and,
depending on the market, might contribute toward closing costs. You can ask
your seller to chip in, which would be reflected as “seller credits” on the
loan estimate form.
Once you get your loan estimate, hustle to find alternative,
lower-priced vendors for different services. You should do this as soon as
possible because, once you hire them, these vendors will need time to prepare
the necessary paperwork.
Your lender might be able to provide a list of vendors that are
less expensive than the one they have on the loan estimate form, but you can do
your own research. Finding cheaper vendors could save you hundreds of dollars
in closing costs.
If you don’t have the cash available to pay closing costs, ask
your lender about options. They might offer a way to roll the closing costs
into the loan.
This might save you money at closing, but it will ultimately
cost you more in the long run because you’d be adding to your loan amount and
paying interest on this, driving up your monthly payment. But if you’re short
of cash for closing, this might be a good solution for you.
Different cities, counties, and states have financial assistance
programs for qualified homebuyers. Start in your municipality by contacting
agencies that are likely to have an up-to-date list of such programs. Many are
for first-time homebuyers, and they help with down payment and closing costs.
This reduces your cash outlay at closing by reducing the number
of days to which the per diem interest is applied before your first mortgage
payment is due–usually on the first of each month. To see how much you’d save,
just multiply your loan amount (the total amount financed) by your interest
rate — for instance, if your rate is 3 percent, multiply by .03 — to get your
annual interest expense. Then divide that figure by 365 to get your daily
interest charge. Next, multiply that figure by the number of days left in the
month. If you close toward the end of the month, this figure would of course be
much lower than closing mid-month.
Did you ever go to buy a car and find out about rebates that you
didn’t know existed? The same may be true with mortgage loans, as some lenders
offer incentives to attract borrowers. These rebates can knock down various
costs a few hundred dollars–easy money for the time it takes you to ask. You
never know what you may find.
If you’re prepared for mortgage closing costs before they hit,
you won’t be surprised by the final figure. You can negotiate some of these
costs and potentially get the seller to help with others. Don’t settle for what
your lender gives you and don’t hesitate to shop around to compare costs from
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