Closing costs typically range from 3% to 6% of the loan amount, but there are some ways to reduce these costs:
Ask lenders for an official Loan Estimate, that details the costs and terms being offered. Be sure to get the legally binding Loan Estimate to compare costs, not a “closing costs work sheet” or a “fee itemization” offered by some lenders. Section C, page 2 will list services that you can shop around for, including the following:
title insurance binder
lender’s title policy
Some money may be saved on the pest inspection and survey, but hundreds of dollars may be saved on title insurance and settlement services, which may be combined.
Compare total prices regardless if the company considers it a buyer’s cost or seller’s cost and ensure that each quote covers the same services.
Avoid or re-negotiate fees with vague names, such as a “funding fee” or “delivery fee.”
Avoid prepaid or per diem interest for the period between your loan closing and the start of the new month by closing at the end of the month. The amount of this interest equals the daily interest rate multiplied by the number of days left in the month. The daily interest rate can be calculated as Daily Interest Rate = Annual Interest Rate ÷365 Days
Ask the lender about any discounts or rebates available.
You may also be able to get a no-closing-cost loan, where the closing costs are added to the loan principal or are covered by charging a higher interest rate. This type of loan may only make sense if you intend to stay in the house for only a few years.
Your lender will monitor your credit right up until closing. Therefore, before closing on your new home, never do anything that may increase your credit risk, such as changing jobs, taking out additional loans, or increasing your debt, such as using cash advances from credit cards to pay closing costs or the down payment. Otherwise, the lender may cancel the loan.
If you have any questions about your current or future real estate transaction, call our team of attorneys at the Kendrick Law Group and Champion Title & Closing to learn more or to obtain one of our customized closing guides.