One set of costs that will quickly become significant to you when you’re purchasing a home is buyer closing costs. Closing costs are the variety of fees charged to you by those involved in the sales transaction. Typically, these costs run from 2 to 4 percent of the sales price but vary with geographical location and your unique situation.
While the down payment can be the real obstacle to successfully purchasing a home, closing costs can also be a significant factor. Many home buyers accept these costs as an inevitability of purchasing a home, but there are things you can do to mitigate many of these costs.
Many new homeowners are intimidated by the bewildering array of costs, but understanding the process can help you minimize these costs.
There are two types of closing costs, recurring and non-recurring.
Non-Recurring Closing Costs
- Title insurance
- Title Search
- Recording Fees
- Appraisal Fees
- Endorsements
- Credit Check
- Attorney Fees
- Document Preparation
- Transfer Fees
- Escrow Fees
- Notary Fees
- Wire Fees
- Courier Fees
- Home Inspection
Recurring Closing Costs
- Private Mortgage Insurance
- Flood Insurance
- Property Tax
- Fire Insurance
Tips to Lower Buyer Closing Costs
- Shop title companies. Title companies do not all charge the same rates. The title insurance, title search, and recording fees can vary from one Title Company to another. Some realtors will insist on using their title company, but you will pay the fees. That means you can choose your title company. Tell your realtor she can choose the Title Company if she pays the costs.
- Compare appraisal fees. You can choose the appraiser; again, you’re going to be the one paying for it. Call around and shop for a less expensive appraiser.
- Evaluate several home inspection services. Just as with the appraisal cost, you can also shop for the least expensive inspector.
- Consolidate your insurance. You should be able to get a lower insurance premium if you get all your insurance from one carrier. This means that one company will insure your home, car, and any other insurance policies you have.
- Avoid pre-paid interest. By closing on the last day of the month, you can frequently avoid having to pre-pay any interest.
- Negotiate your best deal on the house. Points paid to the lender are a percentage of the loan amount and reduce your interest rate. By getting a great deal on the house, the cost of the points will be considerably less.
- Get the seller to help you. It’s not uncommon for a buyer’s offer to include stipulations that the seller will contribute to the buyer’s closing costs. Your offer could include the seller contributing a set amount towards the closing costs or paying for specific costs. You may have to offer a little more for the property to get the seller to agree, but you never know unless you ask.
- Raising your offer to get the seller to pay for all or a portion of the closing costs allows you to finance the costs over the length of the mortgage. This will cost more long-term but won’t require as much money at closing.
Purchasing a house is always an expensive proposition. By taking the appropriate steps, you can reduce your closing costs significantly. Negotiate everything that can be negotiated and see if the seller will help you out. Shop around for the best prices on the various fees that are typically the responsibility of the buyer to pay.
By reducing your closing costs, you’ll not only get a new home but also have money left over for some new appliances!