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Once you add up all the closing costs, you might be shocked by the total. Many of these costs are negotiable, however. Try the tips below to see if you can rein in your spending. Whether you save a few bucks or a few hundred, that's money in your pocket.
- Compare lenders. Lenders aren't required to give you a Good Faith Estimate until after you apply for a loan, but ask for an informal estimate beforehand. Some lenders may refuse, but many will give you a ballpark figure. Compare them to get the best deal. Just remember that any estimate a lender gives you as you shop for a mortgage is just that - an early estimate - and it may change.
- Ask for a seller's concession. If the seller agrees, you may be able to bundle some or all of your closing costs into your loan by getting a seller's concession. Here's how that works: Say you and the seller agree on a price of $175,000 for the house and you request a seller's concession of 3 percent, or $5,250. If the seller agrees (and your lender approves), you add that $5,250 to the price of the house, and the lender determines the mortgage based on a sale price $180,250. (For this to work, the property appraisal must match or exceed the actual sale price - $175,000 in the example - plus the concession amount.) At closing, the seller gets her $175,000 and gives you back the $5,250 concession - and you use that money to pay some or all of your closing costs.
- Negotiate with the seller. When a seller is eager to sell - you may be shopping in a buyer's market, for example, or the seller may be in a hurry to move - you can often get help with closing costs. It's in the seller's best interest to complete the sale, after all, and many sellers won't quibble over a few hundred (or even a few thousand) dollars if the alternative is a house that stays on the market. For example, the seller may offer a credit of a few hundred dollars to replace the family room carpet or agree to a clause in your purchase agreement that says, "The seller agrees to pay up to $2,000 of the buyer's closing costs." Your real estate agent will help with these negotiations.
- Negotiate with the lender. You may find that a lender has some wiggle room with its charges. Ask if there's anything your lender can do to pare down your overall closing costs.
- Don't pay for two attorneys. You need a lawyer to represent your interests when you buy a home. If you choose one from the lender's list of approved real estate attorneys, that attorney can work for both you and the lender and save you several hundred dollars in the process. If you prefer to use your own attorney because you're worried about a potential conflict of interest, you can request that the lender remove its attorney's fee from the closing costs you pay (the lender may or may not agree, but it doesn't hurt to ask).
- Question individual fees. Mortgage closing costs are infamous for "junk fees," additional processing and documentation charges that do little for you besides remove money from your wallet. For example, if you notice an application fee, processing fee, and underwriting fee all listed as closing costs, you may be paying twice for the same service. If a fee seems redundant or you don't understand it, ask about it - and see whether you can get it waived.
- Compare third-party services. A lender may give you a list of approved third-party service providers - appraisers, home inspectors, title insurance companies, and so on. Don't pick the first name on the list. Take some time and do your research; call several providers and ask for estimates, then compare costs.
- Time your closing to save money. One of the costs you pay at the closing is interest on your loan. Mortgage loans are due on the first of each month, so at the closing you prepay interest from the date of the closing until the end of the current month. If you close on (or near) the last day of the month, you'll owe little or no prepaid interest - a strategy that can reduce your closing costs by hundreds of dollars.
- Scrutinize your settlement statement in advance. The settlement statement, called a HUD-1 form, itemizes all the costs associated with your mortgage. By law, your lender has to give you this form at least one day before the closing - although it's not unusual for the various parties to tweak the statement until the moment everything is signed. Grab your HUD-1 in advance, sit down, and compare it to your Good Faith Estimate. Take the time to check for discrepancies and bring any to your lender's attention.
