For most people, buying a home will be the most expensive purchase of their lives. Taking on such a debt can be stressful, even more so when you are also faced with paying for closing costs for the home loan.
Fortunately, there are ways to minimize the amount of money you need for closing costs. Doing so will free up funds for other things such as home repairs or maintenance, moving costs, new furniture or even building an emergency fund for the unexpected.
Here is some information about what closing costs are, how you can lower them and some tips and resources to make your home-buying experience a positive and exciting one.
What are Closing Costs?
Closing Costs are the fees that are paid to the lender and its partners to complete the home purchase transaction. Prospective buyers must pay for the closing costs as well as the down payment, which is a percentage of the home price paid upfront as part of the home loan.
Closing cost fees may include mortgage points (buying down the rate,) title insurance, appraisals, upfront property taxes, loan origination fees, escrow fees and others. These fees vary depending on your lender and situation, so be sure you review them upfront so you can get an idea of the total costs. Travis Credit Union’s mortgage loan consultants can help you understand these costs as well as identify the best home loan program to fit your path to homeownership.
Lowering Closing Costs
There are steps you can take to help lower your closing costs. Not all may apply to your situation so you will need to determine what is best for your home purchase.
- Seek Lender Credits: Explore if your financial institution provides lender credits to lower the closing costs. This means that the lender will agree to take on some of the costs in exchange for you agreeing to a higher interest rate on the home loan. This option will lower your closing costs but increase the rate you pay for your monthly mortgage. You may end up paying more interest over time than the initial cost savings.
- Roll Them Into the Loan: Rolling the closing costs into the loan is more common in home refinancing situations than in initial home purchases. This option allows you to add the closing costs to your mortgage. This will increase your monthly payment but may be a more financially comfortable option.
- Negotiate with the Seller: During your negotiations with the seller, ask if they can help with the closing costs. These seller concessions can also benefit the seller because they are able to use their contribution to the closing costs as a tax-deductible expense. Keep in mind this is more common in a buyer’s market than in a seller’s market.
- Time Your Closing Date: Request an escrow closing at the end of a month. Closing your mortgage at month’s end may help you save on interest paid. Check with your loan officer to see what the difference would be.
- Find The Best Lender: Shop for the best lender. Loan programs vary so pick a lender that has the loan and rate you want at the level of service you enjoy. A local expert can make all the difference, as they have forged relationships with realtors and title companies in the area which can give you an edge. The home loan process may take up to two months, so you will have to be comfortable working with your lender for several weeks. Other loan options to consider are a FHA loan or, if you are or have been a service member, a VA Loan.
Buying a home is a major milestone and Travis Credit Union is here to help find the right loan program for you. Our professional, knowledgeable representatives will walk you through the home-buying process every step of the way.
You can learn more about purchasing a home or the home-buying process using these links. Plus, our mortgage loan calculator can estimate your monthly payments to know how much home you can afford.