Top 9 Ways to Cuts Mortgage Closing Costs
Getting a home loan can be stressful, and what can stress you out even more is all of the mortgage closing costs and fees you have to pay. It is hard for the average person to grasp all of the closing costs you have. How do you know if you are being charged fairly? If you follow some of our tips below, we think that you will be able to save when you sign the mortgage paperwork:
1. Shop Brokers, Banks and Lenders
You should not just shop for mortgage interest rates. Getting a quote from several brokers, banks and lenders is the best thing to do to save on closing costs. Lenders do not have to give you a closing cost estimate before you apply for the mortgage. However, you will probably be able to find lenders who can provide you a rough idea of the fees you will have. We recommend getting a minimum of three estimates from mortgage lenders and brokers. When you shop mortgage companies do your best to negotiate closing costs on mortgage loans.
2. More Lenders = More Competition
After the mortgage meltdown, there were fewer lenders lending, so closing costs and fees shot up. These days, there are more lenders doing mortgages and closing costs have started to go down again. Some financial firms, such as Quicken Loans, are online lenders and do not have physical branches that require them to keep their costs up. Also, lenders are making less on loans even though there are more mortgages being underwritten. That is not the best news for many lenders, but it can save you at the closing table. If you are considering applying for a FHA loan, because the down-payment are minimal, make sure you shop with lending companies that are FHA approved.
3. Know the Area
Where the house is located is critical for understanding what to expect regarding closing costs. The Federal Reserve's states that a general rule is to expect closing costs to run 3% of the home's price. However, in certain area where taxes are higher, this could run as much as 5-6%. The most important factor in your closing costs is the state you are in. There are some states and specific areas where closing costs can even hit 9%.
4. Don't Pay Points?
You can pay points at closing to get a lower interest rate. But if the rates are already 4% or lower, is it really worth paying at closing? Some experts advise against paying down the interest rate when rates are already this low. However, there can be times where this makes sense, especially if you are planning to stay in the home for many years. When being disclosed, "point" are called origination fees.
5. Look Around for Homeowner's Insurance
You do not have to use the homeowner's insurance company that your lender recommends. In fact, many experts say that you are much better off shopping around for insurance. Getting a less expensive homeowner's policy will cut your closing costs and also save you monthly on premiums.
6. Review Closing Documents Closely
Be on alert for high closing cost estimates. If there is one mortgage lender who is charging a much higher fee than another, ask. Also, if there is a lender who is not disclosing a fee, but another lender discloses it, ask questions. Some lenders may provide a low-ball estimate of the tax payment estimate, which could make the closing costs look lower than they are.
Some fees charged by a lender also can be negotiated. The best way to find out is to simply ask your loan officer directly. Be on the watch for junk fees, such as:
Such 'junk' fees do not appear with every lender, so they are easy to spot.
7. Reissue Rate
Did you know you can save 40% on your homeowner's insurance with a reissue rate? This is a discount on the title insurance policy. To do so, most states will mandate that the seller bought the home and insurance policy in the last decade. You must have a copy of the seller's title policy to do this. This alone can save you hundreds in closing costs.
8. Ask If the Seller Will Pay
You may not be able to score this discount in a hot real estate market, but sometimes it can happen. If you are dealing with a slow real estate market or a seller needing to sell right now, they may decide to help pay your closing costs so you will do the deal. You should ask your loan officer if there is any limitation on the seller paying at least some of the closing costs.
9. Check the Closing Disclosure Form
Three days before you close, the lender has to give you the Closing Disclosure form. If there are any fees that went up from your Loan Estimate you received when you submitted your application, ask the lender why.
Think-outside of the box, sometimes. Even the 40-year mortgage loan is back in style this year. Closing costs are one of the unpleasant necessities of home ownership. However, if you do your homework and shop around, you may be able to pinch some pennies.
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