High Closing Costs? Why It Pays To Shop Around
Buyers are often blindsided when they finally get to closing day and see exactly how much their closing costs will be on their new home. Closing costs are not simply a small fee that is tacked on to the end of the process. They can range from two to seven percent of the purchase price which can be a few thousand dollars up to twenty thousand dollars.
This is why you will want to plan for closing costs. Take these steps to avoid paying full price.
Explaining Closing Costs
There are many fees and taxes associated with closing costs. It is not one simple fee that a buyer is paying. There will be an appraisal fee, fees for the title search, recording fee, lender fees, property taxes, title insurance, mortgage insurance, transferring tax fee, and do not forget about the commission paid to the real estate agents involved.
When looking at the fees and taxes laid out it can seem like the closing costs are going to be too much. For many buyers, this cost is one that they struggle with. Many buyers fail to save money back for closing fees, making it an unexpected expense. Even though there are a lot of categories to pay into it does allow for a great variance to lower these fees within each category.
When Closing Fees Are Determined
Many people will wait until the closing day to learn what their closing fees will be. For those that have closing fees of more than five thousand dollars, they are in for a rude awakening. Although there will be a loan estimate document that buyers should review that outline these costs before closing day.
The loan estimate document is something that has to be provided to a buyer. The document must be delivered three days from the application of the loan to outline what the buyer will be expected to pay.
Closing fees that are outlined in this document should be close to what a buyer will pay at the close of their loan. However, it may change. The amount due on the closing day should be provided to the buyer three days before closing day. This is outlined in the closing disclosure that shows what the closing costs will be.
Fixed Fees
While some of the costs are negotiable there are some fees that are a fixed cost. Any fee that is set by a title agency or government agency is not going to be negotiable. They are agencies that deal with these transactions on a daily basis, multiple times a day. They do not have interest in haggling. Unfortunately, this can make up a good portion of costs.
Some of these fees will be shared with the seller. Each area has its own laws and regulations when it comes to closing fees. A buyer should ask their real estate agent what fees need to be paid by each party. Some areas allow buyers or sellers to ask the other party to pay for more than their share of fees during negotiations.
Where to Ask For Lower Costs
The cost of title insurance is something that can vary wildly depending on a number of factors. There are instances where the title insurance will be tied to the settlement. If there are multiple title and settlement companies in the area the buyer may be able to shop around for one that is cheaper.
Certain lenders have allowed members of their bank to have lower origination fees for being loyal to the bank. Shopping around for the right lender can help, as well. When closing try to choose the right date. Interest costs depend on the day the loan closes and it is better to close at the end of the month to avoid large fees.
Finally, the attorney that will conduct the closing is not always picked by the lender. If they allow buyers to bring their own attorney they can save a lot of money by choosing one that has lower fees.
Saving Money
The key to saving money on closing costs is to not allow anyone to suggest taking the easy route. It takes longer and a lot more effort on the buyer’s part to find lower alternatives for these closing costs. But a dedicated buyer can lower their costs significantly if they are able to stand their ground and shop for better prices.