Every real estate transaction includes closing costs on some level. With home prices being higher than ever this means that closing costs have become higher as well. Many home buyers have asked questions on how they can save some money on closing costs when applying for a mortgage and closing on a home purchase.
Here are some of the most common questions right now when it comes to closing costs and some tips on areas where you could possibly save money on them.
How much should a borrower expect to pay for closing costs in 2022?
“Every location and lender is going to have its own specific details that factor into the final closing cost of a home. But traditionally buyers should expect to pay anywhere from 2 to 5% of the total mortgage amount in closing costs,” says Kris Larson, Cottonwood Heights Utah REALTOR®
An important thing to note is that closing costs for the purchase of a new home will be higher than that of refinancing a mortgage because there is property changing hands and more involved in the legalities of doing so.
Are there costs that can be negotiated when it comes to closing cost fees or are they the same across the board?
Specific fees such as title insurance fees are set in stone by each state, but there are other fees that could be adjustable depending upon the area in which the property resides and the specific lender you are using.
There are actually very few specific closing cost items that are charged directly by lenders, but these sometimes can be negotiated upon with the lender. Leverage to negotiate these fees can sometimes depend upon the stability of the borrower in their personal financial status.
It can be possible to have some third-party fees waived or lowered such as the appraisal fee or even a realtor’s commission or some taxes. Other fees are set in stone and non-negotiable such as real estate transfer taxes. Fees that are fixed and unavoidable include a credit report fee and any HOA fees if the property has an HOA.
Are there any tips on how buyers can negotiate or lower closing costs?
Some financial experts will advise that you can negotiate final closing costs with your seller and ask if they would be willing to pay more, this is harder to do in a seller’s market. On the mortgage level, a borrower can also opt to pay a higher interest rate for a no closing cost loan.
The best plan of attack for trying to save money and possibly negotiate on closing fees is to look at every closing cost fee that is listed on the paperwork carefully. For example, if you are being charged points to receive a certain interest rate this can sometimes be negotiated with a lender. One thing to remember is that the lender does not regulate any third-party closing costs which are where most of the negotiations could lie.
“Some financial experts will advise that you look into working with a digital lender that provides the opportunity to cut back on some closing costs because technology allows these lenders to eliminate some fees such as origination and application fees or loan officer commissions,” Says Gregg Camp, Westlake Santa Cruz REALTOR®
Another way to possibly save on paying out a large lump sum and closing fees upfront is to roll them into the loan. Some lenders might be willing to offer a discount on closing costs if the borrower ops to take a bit of a higher interest rate or other lender credits. It is always worth asking your lender if these options are available.
Can choosing a closing date at a certain time of the month help to reduce the cost?
Some financial experts will say that there is a benefit to closing later in the month because of how mortgage interest accrues from the date you close until the end of the month. The later in the month that you close on your new loan the less the interest accrues that homebuyers will be expected to pay out of pocket.
“One thing to be aware of with the strategy is that the later in the month you close on a home purchase the sooner you will have to start making mortgage payments on the property in comparison to your close date,” says Brent Wells, Celina REALTOR®
What is a no closing cost loan?
No closing cost loans simply mean that the closing costs are not eliminated, but rather rolled into a different area of payment method. Most often this will mean that the loan amount is increased to cover the costs. Many times, these types of loans will have a higher interest rate to cover these closing costs as you pay off the loan.
The higher the interest rate on a loan, the higher the lender’s profit will be. So essentially a no closing cost loan will reduce the out-of-pocket costs upfront, but you will make a higher payment over the life of your loan.