If you are like most people, it can take a long time to save for a down payment on a house. Many of us have to make sacrifices in the hope that setting aside a few dollars a day will eventually add up to enough to buy a home. We are all aware that in today's economy that we have to have the necessary funds for the minimum down payment, but many have no idea that there are another round of expenses which are closing costs. Every real estate transaction will have closing costs. You may be wondering how you can avoid these closing costs. There is no way for you to completely avoid these fees when buying a new home, but there are ways you can pay less or have the “feeling” of paying less.
Closing costs generally add up to 3% to 7% of the purchase price. The largest reason for this wide spread are due to Taxes. When you buy a house taxes are required upfront with the amount required depending on the current time of year. You may also be required to place a couple months of taxes upfront into your escrow account.
According to Bankrate.com, Texas has the highest amount of closing costs in the country and Nevada has the least amount of closing costs.
Ways to avoid or lower closing costs
Some closing costs may be negotiable such as attorney fees, commission rates, and recording costs. Take a look at your lender provided good faith estimate (GFE) for an list of these costs and then use your GFE to shop with other lenders to potentially find better deals.
Here are just a few ways to help with lowering closing costs:
1. Negotiate that the seller pays them. Most loan products allow the seller to subsidize up to six percent of the purchase price to the buyer as a credit. It is a good way to close the deal in tough markets and may be a tax deductible expense for the seller. In very hot housing markets where inventory is low (which is almost everywhere these days), it may be difficult to get this but it is still worth the try.
2. Roll the closing costs into the loan. You are already borrowing hundreds of thousands of dollars so it probably will not hurt to add on a few thousand more? Lenders may charge more for this, but if you don't have the upfront money, it's a way to get into the house with less money out of pocket.
3. Close near the end of the month. One of the easiest ways to lower closing costs is to set your closing date near the end of the month. If you close near the beginning of the month, August 2 for example, you will have to pay the daily loan interest from the 2nd to the 31st, but if you close say on the 31st, you will pay for only one day worth of interest.
4. Join the armed forces. Military members and veterans may qualify for funds to assist them in their purchase of a home. These closing cost savings benefits do not only apply to a VA loan. Make sure to do research so that you get everything you are entitled to.
5. Look for bank loyalty programs. There are banks that may offer their customers assistance with their closing costs, if they agree to use the bank to finance the house purchase.