February 11th, 2020 8:37 AM by Jackie A. Graves
When it comes to buying your first home, are there two words
that are more unpleasant and unwelcome than “down payment?” How about “closing
costs?” That’s because first-timer buyers are often surprised by this expense,
or at least confused about how much they will need to pay.
Additionally, buyers may not understand that some of the fees
under the closing costs umbrella are not set in stone. Yes, there are ways to
save money on closing costs. We’re breaking down the potential savings.
First, it’s important to understand the role closing costs play
in your mortgage—especially because we’re not talking about a measly amount.
Closing costs can range from 2–6% of the total cost of your loan. So, on a
$250,000 loan, that’s $5,000–$15,000. Having to come up with that amount of
money after scrimping and saving for a down payment can be a crushing blow.
“The term ‘closing costs’ includes a variety of expenses above
the purchase price of your property, such as fees for an attorney, a title
search, title insurance, taxes, lender costs and some upfront housing expenses
such as homeowners insurance,” said U.S. News & World Report.
There are a number of items on a loan estimate that can vary in
cost depending on the lender. It behooves you to reach out to more than one to
find the best option. And remember this: You may think the winner is the one
who is offering the lowest rate, but that’s not always the case. It could be
that some of the fees are higher with another lender, making the loan less
Lenders are required to provide you with an itemized loan
estimate within three business days from the date you apply for a mortgage. So
now it’s time to compare and contrast your estimates.
“The Loan Estimate lets you comparison shop between companies’
total costs and also dig into specific fees once you’ve chosen a lender,” said NerdWallet.
“You need the legally binding Loan Estimate to compare costs, not the ‘closing
costs worksheet’ or a ‘fee itemization’ that some lenders offer,” Erik Martin,
president of Total Mortgage, a national mortgage company based in Milford,
Connecticut, told them.
Page 2 of the loan estimate has a section called “services you
can shop for,” said Bankrate.
It includes the pest inspection, survey, and “title fees, like title search,
insurance binder, and settlement agent. These are services you can find on your
own or use what the lender provides. If you shop around, you might be able to
find something cheaper.”
And then there are the lender fees. “Lender
fees are fees charged by banks and other financial institutions
for processing and funding a loan,” said LendingTree. “They can
include application fees, attorney fees, recording fees,
underwriting fees and more.” While you may not be able to eliminate
these fees, you may be able to negotiate with the lender to lower them.
Can you control the date of your closing? This is something to
discuss with your lender, because there are potential savings for a
late-in-the-month closing. “Prepaid interest is one of the fees that come into
play when buying or refinancing a home,” said HSH. “Closing toward the end
of the month can save on prepaid interest. For example, if you close on
July 11, you'll have to pay for 20 days of interest. On a $200,000 loan with a
4.5% mortgage rate, that's almost $500. By closing on July 30, you'll only pay
interest for July 30 and 31. Using the same loan amount and interest rate, two
days of interest is only $49.”
There is no requirement that states that the buyer has to be the
one who pays the closing costs. It may be possible, depending on the type of
market you’re in, to get the seller to pay at least part of the costs.
Some loans also allow you to roll part or all of the closing
costs into your mortgage, which will raise your monthly payment some, but save
you from having to come out of pocket.
Certain type of loans will have separate costs involved like an
upfront mortgage insurance premium of 1.75% for FHA loans or a VA funding fee
as high as 3.6%. These are not negotiable fees, but they may help you determine
which loan is right for you and how much of a down payment you want to come up
with. Remember that, for FHA and most conventional loans, you will also pay a
monthly mortgage insurance premium.
All told, you can “save hundreds of dollars, even thousands, by
understanding how you to save on closing costs,” said HSH.
“That money could be better spent going into your home, as opposed to on your
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