Save Thousands on Your Next Mortgage

How to Cut Purchase Loan Closing Costs on Your Next Home Purchase

Closing costs are the expenses home buyers pay at the closing when you purchase your new home. 

While first time home buyers are at risk for over-paying on mortgage closing costs, even experienced home buyers need to be careful when getting a mortgage to buy a home.  Because real estate transactions are infrequent and closing costs can involve a lot of money, it makes sense to learn as much as you can about closing costs for your next home purchase.

Question All Mortgage Closing Costs

Even with the new Good Faith Estimate of Closing Costs form (GFE), mortgage closing costs can be confusing. So don’t be afraid to question every single cost no matter how small. Ask what each cost covers. Then ask if there is any way to reduce or eliminate the cost. Finally, ask your loan originator if there is any room for negotiation to lower costs even further.

Tips to Save on Closing Costs When You Buy Your Home

1. Shop for a Closing Attorney/Title Agent.  A closing agent – either an attorney to a title company – is required to close your purchase loan.  The closing agent handles the closing by helping transfer the deed to your name, completing mortgage documents and making sure all funds go to the right parties.  There is no requirement that you use a particular attorney or title company, so you are free to shop for your own service provider.  Shopping around can save you a few hundred dollars or more.

2. Choose a Zero Point Purchase Loan.  Points are discount points or origination points. One point equals one percent of your loan amount.  Each point you pay should reduce your mortgage interest rate by  one quarter percent for a 30 year fixed rate mortgage.  If you plan on moving in five to seven years or refinancing again, paying points up front to lower your interest rate is not such a good move.  Select a rate option with zero points to save several thousand dollars.

3. Close toward the end of the month.  All mortgage payments are due on the first of the month so a job of the title company is to make an adjustment for the current month – and that costs you money at closing. For example, if you close on the fifth of the month, your lender will have you pay the interest on your loan to cover from your closing date until the end of the month.   By pushing your closing to the end of the month, you can avoid paying this pre-paid interest charge and save several hundred dollars or more depending on the size of your mortgage loan.

4. Ask the seller pay your closing costs! The difficult home sales market continues, so many sellers will happily pay some or all of your closing costs.  So when you are negotiating the sale of your home ask your seller to pay for your closing costs.  Home buyers are allowed by Fannie Mae, Freddie Mac and FHA to have the seller pay between 3% and 6% of closing costs as long they do not give you a credit for more than the actual cost of closing costs.

These four steps will help reduce both your actual costs of buying a home and reduce the amount of money you will need to bring to your purchase loan closing.