6 Ways Home Buyers Can Avoid Closing Costs
November 4, 2020
If you are one of the countless home buyers who reach the end of escrow only to encounter an onslaught of taxes and fees, you have most likely wondered how to avoid closing costs. Representing an additional percentage of the purchase price, closing costs can undoubtedly have a dampening effect on the excitement of buying a home. Although it is impossible to completely cut out closing costs, some fees can be reduced or reallocated through negotiation. Read on to receive some tips on how to avoid closing costs as much as possible.
What Are Real Estate Closing Costs?
Closing costs are additional fees paid at the end of the home buying process. The stage of a real estate transaction during which the property title is officially transferred from the seller to the buyer is called “closing.” At this time taxes and fees associated with the purchase of the home are assessed, thus explaining the origin of the term. Closing costs usually range between six to three percent of the property’s purchase price, fluctuating based on local, state, and national property tax rates.
As their name suggests, closing costs facilitate the closing process. They essentially pay for everything required to complete a real estate transaction outside of the purchase price. For example, some of the costs will be dedicated to the mortgage origination. The bank will charge a fee to “originate” or create a loan — usually one percent of the mortgage amount. The buyer is responsible for that fee, and many others, in the form of a closing cost. Here are some other closing costs to expect:
- Property appraisal fees
- Real estate agent fees
- Loan origination
- Survey fee
- Cost of running a credit report
- Home inspection fees
- Cost of completing a title search
- Taxes on the home loan amount
- Document recording fees on the deed and mortgage
- Escrow deposit
- Mortgage points
- Attorney fees
- Private mortgage insurance (if required)
When it comes to the question of who pays closing costs when selling a house, it should be noted that both buyer and seller are responsible. Note that the buyer will be responsible for the majority of the fees, particularly when it comes to the loan origination, loan taxes, and credit assessment.
Can You Negotiate Closing Costs?
You can and should negotiate your closing costs, especially as the price tag on buying a home continues to rise. Although there is no way to eliminate all taxes and fees, there are methods to drastically cut down on some of the negotiable line items. In October 2015, the Consumer Financial Protection Bureau put into effect the Loan Estimate, which requires lenders to provide a thorough breakdown of the mortgage loan you have applied for, including the closing costs. The Loan Estimate has made it particularly helpful for shoppers who are interested in negotiating their closing costs before committing to a mortgage loan.
Are A Down Payment And Closing Costs The Same?
A down payment and closing costs associated with purchasing a property are not the same; rather, they are two distinctly different types of payments. A down payment is typically a percentage of the property’s purchase price, which the lender requires to be paid out of pocket. When a buyer pays closing costs it typically includes taxes and fees but is in no way related to reducing the principal on the mortgage loan.
How To Avoid Closing Costs When Buying A House
Although cutting out closing costs outright is not possible, there are strategies to minimize costs through negotiation. When examining who usually pays closing costs, an extensive amount falls on the buyer. However, the buyer can negotiate in such a way that some of the fees are reduced or assumed by the lender, or shifted to the seller’s closing costs. Below you will find some creative tactics on how to avoid closing costs as much as possible:
Negotiate A No-Closing Costs Mortgage
In some cases, the buyer can negotiate a mortgage that does not have any closing costs. However, remember that closing costs must be paid in one way or another. In this case, the lender will typically raise the interest rate or will bundle closing costs into the total cost of your mortgage.
Negotiate With The Seller
Closing costs for sellers typically include commission fees, loan payoff costs, and transfer taxes, to name a few. In some cases, buyers can negotiate with the seller in such a way that the seller pays closing costs instead. Many loans will allow sellers to assume these costs in the form of a credit as a way for them to help seal a deal and is also a tax-deductible expense.
Comparison-Shop For Services
Many closing cost line items are service fees, such as from the title insurance, homeowners insurance, and home inspection companies. Buyers should not hesitate to shop around for loan products and service providers that offer competitive rates.
Negotiate Origination Fees With The Lender
When working with a lender, inquire about a fee reduction, waiver or credit to help offset some of your closing costs. When shopping for lenders, keep in mind that they are required to provide a Loan Estimate upon completing your mortgage application. This allows you to scrutinize the line items included in the closing costs, such as application fees or attorney fees. However, be wary of scenarios where the lender will offset your closing costs by increasing your interest rate or bundling them into your total mortgage cost. Finally, keep in mind that some lenders offer loyalty programs for current customers, through which origination fees are reduced or waived.
Close Towards The End Of The Month
A home buyer becomes legally responsible for repaying their mortgage loan once their home purchases closes. If the loan closes mid-month, the buyer will typically make their first mortgage payment on the first of the following month. In this case, per diem interest fees are assessed between the closing date and the date of the first mortgage payment. Buyers who close their home purchase as close to the end of the month as possible can minimize these per diem interest fees.
Check Into Army Or Union Discounts
If you belong to the military or a union, you may have financial assistance when purchasing a home, including discounts or rebates for closing costs. Make sure to research your benefits before shopping for mortgage loans.
Lava Integrity Group, LLC is a San Francisco East Bay Area residential redevelopment company. We focus primarily in Oakland, CA and Concord, CA. Our team is highly motivated, knowledgeable, ethical and resourceful. Qualified to handle any real estate transaction, our dedicated staff is committed to helping people with their real estate needs and making successful deals happen. Our team of professionals has the integrity to follow up on our promises, and the expertise to navigate any transaction to ensure you’re fully informed for making the best decision possible.
When we work directly with a home seller, what we provide can not only make for a smooth transaction, but it can also add up to thousands upon thousands of dollars in savings as compared to selling a home through traditional means. With the ability to directly purchase homes and make cash offers, we can create extremely fast and hassle-free transactions.
There are many creative ways to help you out of any situation. We pride ourselves on our reputation for working one-on-one with each customer to handle each individual situation; and it’s our goal to make each client feel like we achieved a WIN-WIN scenario.
We’d love to learn about your situation and see how we can help. Call (510) 900-4090 or email ([email protected]) us to get a no obligation offer on your home!
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