It’s undeniable that the most exciting moments in our lives usually come along with some anxiety – weddings, the birth of children, starting a new career…and buying a home. As overjoyed as they might be when their purchase offer is accepted, it seems like prospective home buyers hardly have a moment to celebrate before new concerns bring them back to reality.
One of these concerns is the oft-dreaded closing costs. Closing costs – the fees your lender charges at the finalization of your home purchase – are regarded by most as a necessary evil. But armed with a little knowledge, even the most inexperienced buyers can feel prepared for this step and equipped to negotiate for fair closing cost expenses.
Here are some guidelines for home buyers in every step of the process:
PRIOR TO CONTRACT
If you are concerned that coming up with enough cash for both your down payment and closing costs will be more than you can handle, consider requesting the home seller to pay a percentage of your closing costs as a contingency in your purchase contract. Many sellers anticipate covering a portion of the closing costs in a real estate transaction and factor this into their asking price accordingly. What percentage of closing costs will be seller-paid depends both on the seller’s preference and on the type of loan you are using, so be sure to talk this option over with your real estate agent.
Additionally, some lenders will pay all or a portion of your closing costs in exchange for your acceptance of a higher interest rate on your loan. Be sure to calculate the long-term cost of this option to determine if it is a good choice for you.
Your lender is obligated to provide you a Good Faith Estimate (GFE) within 3 days of your loan application. Because real estate purchases often come with a mountain of paperwork, it can be tempting to avoid a careful examination of items like the GFE. But this is one document you want to scrutinize carefully! Non-recurring fees, such as application fees and settlement costs, can be negotiated with your lender. So shop around and see how your lender’s fees compare with standard fees from other lenders. Don’t be afraid to ask for a lower price for these items and for an explanation of charges you don’t understand.
JUST PRIOR TO CLOSING
Request your lender to provide you the HUD-1 Settlement Statement and then compare the fees listed on that document to the fees listed on your Good Faith Estimate. If there are discrepancies, ask you lender for an explanation.
Being as proactive as possible in the home buying process is always to your advantage, so be diligent about researching and negotiating closing costs. And then get back to celebrating!
Photo credit: victor1558