How Can I Lower My Closing Costs?
In the state of Florida, the average amount a home buyer will spend to settle their real estate transaction is nearly $2,650 on a loan of $200,000, or, about .013 percent of the total purchase price.
Obviously, the more the cost of the home, the more the closing costs will be. When you add in moving expenses, the time and effort it takes to sell your own home, which might include staging, and all the other incidentals, you're going to spend thousands of dollars out of pocket to get into your new home.
Another possible expense are discount points, the prepayment of interest in exchange for a lower rate, that's paid by the borrower at closing. In other words, your checkbook will get quite thinner, and, this is typically done in the span of just 30 to 60 days.
Getting the Right Mortgage
Since there are so many short term expenses, not to mention the long term cost of repaying a mortgage, you'll want to choose the best mortgage product to save over the life of the loan as much as possible. Some home buyers make the mistake of believing certain home loans are the only ones right for them just because of the access and their particular situation.
It’s closing time: Last call for every entity with even a small role in a home sale to collect their fees. Home buyers—eager to get the keys to their new place—must first cover myriad costs, such as lender fees, mortgage insurance, a title search, recording fees, real-estate taxes, survey costs and an appraisal. --The Wall Street Journal
For instance, members of the military and veterans tend to focus on VA loans. However, there are certain restrictions which might not make it the best choice. Just because you fit the criteria to get a certain type of loan does not mean it will be the best one. It's always a good idea to shop around and compare products in order to make the right choice.
A prime example, especially in Sarasota where new master planned communities are being built, is applying for a loan the developer recommends. While it may be convenient, it might not be the best lender. Speaking of new construction, it's a good idea to have your own buyer's agent when purchasing a home, even if the builder has a real estate professional showing the homes.
Ways to Lower Your Closing Costs
Just as you should shop and compare lender products, you should do the same with the title company or closing agent. In Florida, it's common for the seller to choose the settlement entity, however, the buyer, through their real estate agent, can request to select or recommend a title company. After all, the seller will want to save money to maximize their return on investment.
Once you've applied for a mortgage, in three days, you'll receive what's known as a GFE or Good Faith Estimate. This is a document prepared by the lender that contains estimates of all the service fees you'll pay. It's required by federal law, and though the line items are estimates, the lender's own origination fee must be accurate. Outside the lender's origination fee, the line items are estimates, which have a variation of approximately 10 percent, meaning these are not exact amounts.
The good news is, practically everything is negotiable. Many buyers choose to roll their closing costs into their mortgage loan and while this is a convenient option, it isn't necessarily the best choice. Here are some ways to lower your settlement costs:
- Shop around and compare loan products. Just because you've had a checking and savings account for years at a particular bank or credit union doesn't mean there is where you'll find the best deal. Take the time to compare various home loans.
- Compare all costs. What you'll find is that not only will the line item costs are different, each differs in name from lender to lender, though you'll probably be able to discern which are the same.
- Go through each item. Once you have made a choice, it's now time to speak with your lender and have every line item explained. Here's where you'll be able to have some fees reduced or even eliminated.
- Use comparable offers to your advantage. If you've really shopped around, you'll have different products, and incentives, to compare. Be sure to use this to your advantage and ask for a matching deal.
One thing you'll likely find is that some of the fees are "garbage." These are typically vague, and fall under blanket names such as "underwriting fees," "processing fees," and so on. You can ask to have these discounted or taken off. Remember, you'll be paying a mortgage for many years and every little bit will count.