If you are thinking about buying or refinancing a home, you may want to apply for a mortgage with no closing costs. Closing costs can be expensive and somewhat of a challenge to pay in addition to the down payment. When you close on a new home, closing costs along with other fees and taxes are generally due in cash.
Closing costs generally include appraisal costs, title insurance, taxes, prepaid costs, and tax service provider charges. Average closing costs, including fees and taxes, were $7,227 in 2019.
While these costs may seem high, there are ways to keep your mortgage closing costs low. Here are a few of those methods:
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Negotiate Fees with the Lender
When buying a house, your lender will itemize the fees that they want you to pay, and you can negotiate at this point in the process. Homes are expensive, and you have leverage as a buyer. You can request some of the extraneous fees be adjusted and removed from the final price.
Request that your lender provide you with a closing disclosure form so you can review information on the loan estimate and require the lender to account for any inconsistencies.
Ask the Seller to Lower the Sale Price
You will be surprised at how far asking can take you. Many sellers are more than willing to negotiate and lower the sale price of a home to help you reduce closing costs. Some sellers are even eager to pay part of the closing costs to get you into the house.
Check the climate of the market, and you will be able to determine how willing your seller is to help you negotiate and reduce your closing costs.
No Closing Cost Mortgages
A no closing cost mortgage can save you money in the short term as the lender will pay the initial closing costs and fees, and raise the interest rate slightly on your mortgage.
With this kind of arrangement, be sure to think about the long term. You will end up paying thousands of dollars more in interest over the life of the loan, but if you are short on cash initially, it might be a good option.
Save on Points
If you are buying a home while interest rates are low, chances are you won’t have to spend money on points to lower your interest rate any further. Generally, points cost about 1% of your mortgage’s value, and that can be a lot of money if you want to lower the interest rate significantly.
It’s also cash paid upfront in closing costs, so it’s probably not a great idea to overpay on discount points.
Low-Cost Mortgage Options
Select the right low-cost mortgage for your unique situation. There are many different kinds of mortgage programs to consider, including FHA loans, VA loans, conventional loans, jumbo, USDA, and others.
Mortgage loans are designed to meet the individual needs of borrowers.
Many find that FHA loans are an ideal choice because it works well for buyers with less than stellar credit and little money for a downpayment. Military mortgage loans like the VA loan also offer no to low down payments.
Conventional loans often require a 20% downpayment. Each type of loan has different rules for closing costs, so you will want to review these to take advantage of the best deal possible.
Delay Your Closing
One way to lower your closing costs is to consider the prepaid daily insurance costs. These can be reduced by closing at the end of the month. Be patient with your new home negotiations and schedule your closing so that you will save on closing costs.
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