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Closing costs for mortgage and real estate transactions are inevitable. Negotiate to reduce your closing costs using these 5 easy tips.
Closing costs are the total fees that you're charged to attain a new mortgage loan for a purchase or refinance. They can also be the fees you would be charged to buy or sell a home. Closing costs can vary, and in recent years, closing costs for mortgages have been on the rise due to the regulatory environment.
On average, closing costs for mortgages can range anywhere between 2% to 5% of the loan amount. Although closing costs are inevitable, there's no reason why you shouldn't try to reduce them.
The following are some tips to help you reduce your closing costs.
Courier Fee:These days, nearly everything is done online. Save yourself money by asking your lender to email you whatever documents they need to send you instead of sending you document packages. With the ability to do e-signings, you are able to sign documents from your computer or tablet without the need of printing documents, signing them, and faxing or mailing them back to the lender. Sending packages back and forth through the mail can delay the process by days.
Title Insurance:A lender or a realtor may recommend you to use a particular title insurance company, however, it doesn't mean you have to use them. Do your research to see if there's another title company you can find that will charge you less for the same services.
Application Fee:Negotiate the application fee with your lender and let them know you are serious about getting your mortgage through them. A lender will not want to lose your business for an application fee and will be more inclined to waive this fee to retain your business once they know you are serious.
In the end, the realtor may answer no to your request for a commission reduction or credit, but it never hurts to ask. It's important not to get hung up on this issue, especially if you are working with good realtor who can get the job done right.
Having the seller contribute to your closing costs has become common practice for home buyers. Depending on the type of loan you're getting, the amount the seller can contribute towards closing costs can range anywhere between 2% to 9% of the purchase price.
The following are some of the closing costs the seller can contribute to on a purchase transaction:
Your realtor is the best person to talk to about how to negotiate the closing costs with the seller's agent. If the seller agrees to contribute to the closing costs, you cannot use the money for any other purpose, such as a down payment on the home.
You can reduce your "out of pocket" loan expenses by adding your closing costs to your loan amount. This is called a lenders credit. This option is ideal for borrowers who do not want to pay any closing costs out of pocket for any reason.
Your loan amount will increase when using this option. In addition, your lender may also charge you a higher interest rate due to this higher loan amount. Be sure to understand all of the implications involved in using this method by speaking with your realtor and loan officer before making your final decision.
Did you know that closing your loan at the end of the month can save you on prepaid interest?
If you decide to close your loan on May 15th, then you would have to pay daily interest charges for the remainder of the month. If you close your loan by May 30th then you only have to pay one day of interest.
On a 30 year fixed loan, at a 4% interest rate and a $300,000 loan amount, the daily interest charge would be approximately $32.26 for the month of May.
Take note that closing at the end of the month will only help you with your cash flow and not necessarily save you money. Also, the seller may want to close at a particular day of the month because they are buying another home. Look at your cash flow first before making this decision and don't hesitate to question your realtor and/or loan officer to for clarification.
Some of these negotiations may not always work, especially when the real estate or mortgage markets are very active. During these "hot" markets, lenders and realtors may be less inclined to offer discounts in order to gain your business. However, if you are able to negotiate the reduction of just one fee, you still come out a winner because the majority of people never even ask.
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