One of the things that many first-time home buyers don’t take into account when budgeting for their new home is the closing costs that they will be required to pay once they finally sign on the dotted line. The closing can end up costing a substantial amount of money. As a rule, you can expect your closing costs to equal about 3 percent to 6 percent of the property’s total purchase price. Closing costs cover everything from loan origination fees to title search fees, among others. Although there’s no way to get around paying these fees, there are ways you can reduce them. These are four home buyer tips that can help you to reduce your closing costs:
1. Compare lenders before making a decision
You do not have to choose the first lender you meet with. Different lenders offer different terms, which means that you should shop around to find the best deal. Keep in mind that interest rates aren’t the only things you should be comparing. Ask about the involved closing costs and about any fees that are negotiable. If you notice that one lender is offering discounts on certain fees, use this information to try to get another lender to meet or lower their offer.
2. Delay the closing date until the end of the month
You should try to schedule the closing date towards the end of the month. Rescheduling your closing date can reduce the pre-paid daily insurance charges, which in turn can substantially reduce your closing costs. The way pre-paid daily insurance charges work is that you are required to pre-pay interest between the closing date and the first mortgage payment you make. If you close in the beginning or middle of the month, you’ll have to pay for more days of pre-paid interest. Paying towards the end of the month won’t save you on interest in the long term, but it will help soften the short-term financial blow by cutting down your closing costs.
3. Join a lender loyalty program
Some lenders have loyalty programs that you can join. These programs sometimes offer closing cost assistance to their customers. For example, a lender might reduce your origination fees if you choose to take out a mortgage with them. It is always a good idea to ask the lenders if they offer a loyalty program.
4. Apply for a special assistance program
If you are on active duty, a veteran, a reservist, a national guardsman or even a civilian employee of the military, then you may be able to qualify for the Military Housing Assistance Fund. This program was designed to help minimize the out-of-pocket costs of closing. To do this, the program will negotiate seller concessions and then provide gift funds to cover the remainder of the closing costs. You won’t have to repay these costs if you qualify either.
The Everyday Hero Housing Assistance Fund works like the aforementioned Military Housing Assistance Fund, except that it is designed to help police officers, firefighters, teachers and medical professionals. There are other programs that you can apply for as well, such as Fannie Mae’s HomePath program and Freddie Mac’s HomeSteps program.
Buying a house is expensive, and the closing costs are a big part of the expense. Fortunately, there are ways that you can reduce your closing costs to help soften the financial burden of buying a new home. Be sure to look into these four home buyer tips to help reduce your closing costs as much as possible.
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