How to Negotiate Closing Costs and Save Money

Closing costs can be substantial depending on the purchase price, as well as real property taxes of the state that the property is located in. Whether this is the first time buying a home, you have better things to do with your money than overpay for closing costs.

Just paying for the down payment may have already sent you scampering to be more creative with your household budget. And just when you think you are done after bargaining with the seller to bring down the purchase price, you are hit with another right hook that you didn’t see coming—closing costs.

Can You Avoid Closing Costs?

Unfortunately, it’s difficult to avoid paying closing costs, which can range between three percent and seven percent of the purchase cost. For instance, if the purchase cost is $300,000, you are looking at an additional $9,000 to $21,000 before you can move into your new home.

The taxman will dip his finger into the transaction. You will have to pay the state transfer fees during closing.

The only thing you can do is to cut as much of the fat as you can to get the closing costs down to a minimum.

Creative Ways to Cut Down on Expenses

• Close the Transaction at the End of the Month – This is to ensure that you are only paying for the per diem interest once instead of twice if you close on the first week.
• Try to ask the seller to cover the closing cost – This is an option because most loans are structured to enable sellers to take a hit for as much as six percent of the purchase price. This is tax-deductible so that’s another incentive for the seller.
• Check the Good Faith Estimates – Smart mortgage shoppers apply for at least two loans and use the GFE’s to determine which lender to use.
• Shop around for Homeowners insurance – The insurance cost will depend on the state you live in. For instance, in Florida, you are looking at $3,500 annually compared to the $1,500 in Nebraska.
• Review all documents – You might be surprised by the number of superfluous fees that are included in the closing costs. You need to review each one and contest any dubious items listed in the documents.

Among the closing costs you can expect when you buy your own house are the government recording fee, tax status research fee and tax monitoring fee, escrow tax, transfer tax, prepaid daily interest charge, title insurance, appraisal fee, application and credit report fee, loan origination fee, settlement and attorney’s fees, rate lock fee, and mortgage insurance. The dollars can add up if you don’t get creative in trying to reduce the closing costs.

If you really have no extra money, you can just add the closing costs to your loan principal. The only drawback is that you end up paying more in the long run because of interest.