When you’re caught up in the process of buying a house, it’s easy to focus on obtaining a mortgage and arranging the funds for a down payment. However, there are a number of additional costs you should also consider. Closing costs can add up to anywhere between 2 and 5% of the purchase price of your new home, creeping well into the tens of thousands of dollars in some cases.
From legal fees to home inspection costs, the considerable closing fees are worth remembering, as they can quickly cause a big headache if you’re not prepared. In some cases, you may be able to negotiate the price of your closing costs, and reduce, or even remove them entirely. Read on to find out how.
Negotiate with the Seller
One of the best ways to reduce your closing costs is to negotiate with the seller. However, this won’t always work, and you need the right circumstances for things to go in your favour. This move typically works best in a buyer’s market, or when the seller is hoping for a quick sale.
When making an offer, you can ask for the seller to cover all or part of the closing fees outright. Depending on the market and their own desire to get their home sold quickly, they might agree. If not, they may come back with a counter offer that asks for a higher price, but with all closing fees paid. This can be good for those struggling to come up with the cash for closing fees in the short-term, but in the long-term, you may pay more in higher mortgage repayments and interest rates.
Alternatively, if after the home is inspected certain defects are found, you could offer to buy the home with the defects, but with the cost of repairs going towards your closing costs. This can be great for both buyer, who can sit on the extra cash, and a seller who is looking to move quickly and doesn’t want to worry about the burden of renovations.
Be Picky When Getting Pre-Approved
It’s worth listening when people offer sage advice such as ‘shop around for your mortgage’. There are many different lenders out there, so when you’re seeking a pre-approved mortgage, you can afford to be picky. Do some research in advance, and make a shortlist of those lenders you want to find out more about.
Upon issuing your pre-approval, each lender should provide an itemized estimate of your loan, detailing the various fees involved. Once you’ve gathered a few, do a side-by-side comparison, noting how certain items differ from lender to lender. You can then discuss those items that are charged by the lender directly, such as underwriting and application fees, and attempt to negotiate the price down. If you have a preferred lender in mind, but have received a better offer elsewhere, you can ask about price matching.
No Closing Cost Mortgage
While discussing loan options with lenders, you can also ask about ‘no closing cost mortgages’. These are loans in which the closing costs are covered by the lender, and added to your loan. This removes the lump sum that you’d typically have to come up with, but increases your overall loan. This normally results in either higher monthly repayments or higher interest rates.
It’s a good option for those looking only for short-term ownership as they can use the funds elsewhere, for example, in renovations. However, if you’re looking for lower monthly payments, and a long-term loan, it might not be such a good option as you can easily end up paying far more than the original closing costs would have been.
Choose Your Closing Date Wisely
The closing day is the day that the house becomes yours, and you become responsible for everything from insurance to utility bills. Many taxes and fees, including utility bills, are prorated, i.e. they adjust in relation to how long you’ve been living in a home. So, if you choose a day that is at the end of the month, many of your taxes and fees will be reduced compared to if you had closed earlier in the month.
While it is possible to reduce or even remove your closing costs, it’s worth remembering that there’s normally a pay-off involved. Whether this is a larger loan or buying a house in need of repairs, it’s unlikely that you’ll remove your closing costs entirely and be carefree, though it’s not impossible. Do your research, and don’t be afraid to ask!