Real Estate Advice

Are you interested in learning how you can reduce the closing costs when buying or selling a property? There is a hidden way that many people do not realize. They can save hundreds of dollars. How? Title insurance. Just about every buyer requires a title insurance policy. Sometimes, you are purchasing the property and paying for title insurance as the buyer. Other times, you’ll be selling the property and the buyer might have you pay for the policy. No matter which the case, title insurance is one of the largest costs you’ll be paying during the closing.

What are closing costs? What do they include?

Closing costs include a wide array of expenses that have to be paid when the home is purchased. Brokers, surveyors, and attorneys are often paid at closing, and lenders charge application, processing, and credit report fees. If you elect to purchase points to lower your mortgage rate then that expense will be due at closing as well. You should also expect to pay for prorated interest, escrow property taxes, advance homeowners insurance, appraisal…the list goes on and on.

When it comes to closing costs for buyers, aiming to reduce them to the absolute lowest expense is a no brainer. Unless you’re a celebrity or millionaire, it takes a long time to save for a down payment on a house, let alone the closing costs. The rest of us sacrifice our gourmet coffee for the lukewarm in-office drip in the hope that setting aside a few dollars a day will magically compound into enough to buy our piece of the American Dream.

Almost no title companies will let you know about how you can reduce the cost. You can actually reduce it by about two hundred bucks, sometimes more. How? Well, in order to reduce the cost, give the title company a copy of the existing title insurance. Afterward, they’ll give you a discount. How simple is that!

Title insurance policy

The seller should have the title insurance policy from their closing documents when they purchased the house. Just ask them for the document. It’s only a little time out of your life to get it, and it can save you big bucks over the long term. If they don’t have it, you can search for the contract information by contacting the title company that is listed in the paperwork.

Any time you save money on closing costs, you are profiting that money. Any money saved is more money in the bank. This is why getting an education in real estate is so important. Sometimes, its the simplest things that can save you money; things where you don’t even have to do anything other than make a phone call.

Closing costs are very expensive. Most of the time, the seller and buyer (or both) are over-paying in closing costs. The title companies, loan officers and brokers are certainly not going to let you know that. You’ve got to know when they are price-gauging you.

Getting the seller to pay for them

Sellers are legally allowed to pay for 2-9% of closing costs, depending on the loan type. If you’re in a seller’s market then don’t expect much in the way of concessions. However, you may be able to get the seller to foot the bill for some of your closing costs in exchange for accepting a higher contract price. That way, you can spread the cost over the duration of your mortgage instead of paying for everything up front. If you’re dealing with an eager seller in a colder market then you may find them amenable to footing the bill for a portion of your closing costs just to get the deal done. And remember, many closing costs are tied to the overall sale price, so every price reduction you can negotiate means lower closing costs, as well.

Lender Offset

Your lender may be willing to roll some of your closing costs into your mortgage if you’re willing to pay a slightly higher interest rate. It’s a tradeoff, as you’ll probably end up paying them back several times over for the courtesy, but it still allows you to improve your short-term cash flow situation, which may come in handy at a time like this.

Shop Around

It may be tempting to just go with whichever lender your agent recommends, but shopping around can save you a lot of money. Check with different lenders and read the fine print. You never know: you could end up saving thousands just by switching lenders. The same goes for title and homeowner’s insurance, and home inspections. You’ve got a lot on your plate, but it’s worth shopping different providers when there’s this much money at stake.

Agent Credit

There’s a chance that your real estate agent may be willing to give you a credit toward your closing costs if they’re especially eager to have your business. It doesn’t hurt to ask.

Closing in on Homeownership

Buying a home is exciting, but it’s also expensive, and because of this, it pays to save as much as you can on closing costs. That way, you’ll have plenty of spare cash to pay for stuff like your moving van, some flowers for your walkway, and paint for the master bedroom.

The bill for closing costs is the final hurdle between home buyers and their new homes, and it can represent a surprising chunk of money. The impulse to just pay up and move in is understandable, but you wouldn’t buy a car or a TV without researching prices on other, similar products. Same goes here.

Strategy No. 1: Ask lenders for a ‘Loan Estimate’ form
Your closing costs are technically first itemized in the three-page “Loan Estimate” form that your lender must produce within three business days after you apply for a mortgage. It’s a little-known fact, but some lenders will give you a Loan Estimate form even before you apply for a loan, although it’s not required. (Note: You’ll receive a final “bill,” called a “Closing Disclosure” form, three days before closing.)

The Loan Estimate lets you comparison shop between companies’ total costs and also dig into specific fees once you’ve chosen a lender. You need the legally binding Loan Estimate to compare costs, not the “closing costs worksheet” or a “fee itemization” that some lenders offer.

Strategy No. 2: Know where the savings are
The bottom of the first page of the Loan Estimate form shows the total closing costs and cash needed to close the loan. These fees include:

• • Pest inspection
  • Survey
  • Title search, which investigates a property’s history for restrictions or liens
  • Lender’s title policy, which protects a lender in case of a problem with the title
  • Title insurance binder, which covers the buyer and seller during the transfer process
  • Settlement agent, also called an escrow agent or closing agent, who represents the buyer and oversees the closing and legal transfer of title

Of these fees, you stand to save most on the priciest services: title insurance and settlement services, which are often combined. Comparison shopping among pest inspectors or surveyors might not uncover great price differences, but it doesn’t hurt to ask.

Strategy No. 3: Flat fees
A lender might charge a flat fee that wraps in services such as underwriting and originating, while others charge for each separately. That’s fine. However, when you start seeing more than one, definitely two, three, four or five line items of itemized charges to a mortgage company, they’re nickel-and-diming you. That’s true of bills for any closing service.

And watch out for fees with vague names, such as a “funding fee” or “delivery fee.” If you see these fees, ask your lender about them. It might remove certain fees, or you might need to look for a different lender that doesn’t charge as many.

Strategy No. 4: Comparison shop for title and settlement services
If you’re going to shop for title and settlement service providers, move quickly. These firms require time for research and preparing documents.

The companies your lender recommends might be good deals. Perhaps your lender negotiated a volume discount, or knows a particular company’s service is outstanding. But do your own online research and ask friends and family for referrals.

You can generate competing quotes on online marketplaces. Some companies pay an annual fee to be listed. Shoppers enter information about their property and mortgage, including address, price, property type, closing date, whether there’s a mortgage and, if so, for how much.

Tips for shopping for title and settlement companies:

Don’t get mired in details. One settlement service will list certain items as buyers’ costs; another as sellers’ costs. Ignore that. Just compare total prices. Low fees aren’t everything. Service also counts for plenty, so consider customers’ recommendations.

Strategy No. 5: Ask the seller to contribute
Depending on the market and the home, a seller might contribute money toward your closing costs. However, inventories are low in many places these days, and buyers are competing aggressively, so sellers don’t make many concessions.

Strategy No. 6: Consider a ‘no-closing costs’ mortgage
A no-closing costs mortgage can be helpful if you’re short on cash. But the closing costs that you don’t pay upfront will be folded into the loan, which will increase your monthly mortgage payments.

Strategy No. 7: Sign loan papers near the end of the month
Reduce your cash outlay at closing for prepaid or “per diem” interest for the period between your loan closing and the start of the new month. How much can you save? To find out, multiply your loan amount by your interest rate to find your annual interest charge. Dividing that by one year gives the daily interest charge. Now, multiply that figure by the days left in the month to see the savings.

Strategy No. 8: Ask your bank about discounts and rebates
Some banks offer existing customers incentives on their mortgages.

Final tips

Review the closing cost forms and take a look for red flags. When you shop around comparing costs, feel free to ask questions. For example, if one lender is not disclosing a fee up front, ask why they didn’t include it. If you notice one company is charging dramatically less than another company, ask about the price difference. By reviewing and asking questions, you will know the estimate of your closing cost will be. If you are not sure what you are being charged for, ask your loan officer.

Reissue rates
Take a look at Reissue Rates. Do you want a discount on your homeowner’s title insurance policy? Take a look to see if you qualify for a Reissue Rate. In most states, the seller has to purchase the home and insurance policy within 10 years to qualify. Take a look at the seller’s policy to find out. If you can’t find that information, your title company can locate it and see if you qualify for a Reissue Rate or not. This task can save you hundreds on closing costs alone.

Be realistic about what you can negotiate on
Know what costs you can negotiate on. Some of the fees on your closing costs are negotiable. One of the costs you can negotiate will be your homeowner’s insurance. Shop around to see how much each company will charge you, and try to see if there are deals like if you bundle your auto and other insurance together or discounts like if you are buying a new home versus an existing one. Not too sure what other costs are negotiable and which aren’t? Ask your loan officer and they will help you out.

Look for red flags
Review the closing cost forms and take a look for red flags. When you shop around comparing costs, feel free to ask questions. For example, if one lender is not disclosing a fee up front, ask why they didn’t include it. If you notice one company is charging dramatically less than another company, ask about the price difference. By reviewing and asking questions, you will know the estimate of your closing cost will be. If you are not sure what you are being charged for, ask your loan officer.