When you get to the point in your life where you are ready to purchase a home, there are many unexpected expenses. Property assessments, inspections, taxes and improvements are bad enough, but tacking on excessive closing costs can be the final straw. Understanding some of the terminology and the tricks of the trade can help you minimize these costs and bring your house price down, so here’s a primer.
The Terms They Use
On the most basic level when a Realtor talks about points in closing, they are talking about a percentage of the house price. One point equals one percent of the total price. Any line item on the loan agreement that is an 800 block is a place where “junk fees” are hidden. Ask to see them broken down.
Look for names like “funding fee” and “deed recording.” The price to record a new deed is available from the county clerk’s office and this shouldn’t exceed that price by more than a few dollars. A funding fee is pure padding. Ask for explanations on any fee you don’t understand. If you don’t get a good explanation, suggest they put off closing until you can have your lawyer take a good look at their fees. They will almost certainly negotiate at this point.
Negotiate Over Everything Possible
The best place to negotiate actually appears in the 1100’s section. These are fees that include the title search, settlement fees and attorney’s fees, as well as other such charges. Often the lenders just lump together these fees even if they don’t utilize all of them on your purchase, in the hope that they will pass under your radar.
While there is no such thing as a “no closing costs” loan, the fees are just rolled into the loan itself. You can choose to pay some closing costs for a benefit later on. For example, if you opt to pay a point or two to drop your interest rate, it can pay off over a few years. This increases your upfront cost in order to reduce the overall interest paid later. This is often called a “loan discount.”
Shop around for your hazard insurance. It is tempting to go with the company the lender recommends, or to stick with your current insurer, but this is one of the places where you can save hundreds, if you do a little footwork. While it is mandatory to have hazard insurance, you don’t have to agree to a specific company for coverage. Once you find the company you wish to use, have them call the lender and communicate. You won’t get to close without proof of insurance.
Home ownership is a mile marker on the road of the “American dream” to which most aspire. The costs of owning a home are only starting when you sit down to close on your home. Every dollar you can knock off these costs is a dollar you can spend on more important things; like those beautiful lace curtains for your new dining room, so take some time to do your homework in order to save.
This is another piece from the free ebook called How to Save Money on Everything. Get your copy by signing up to the free frugal newsletter here.