By Joel Wanjiku
Closing costs in real estate refer to the expenses incurred from various services offered and fees charged when buying property. For example, you need to hire a real estate agent to help you find the property, an attorney to handle the legal contracts, and an inspector to assess the property’s condition. Other expenses include taxes and various fees, such as insurance, mortgage application fees, and more. Overall, closing costs usually add up to thousands of dollars.
Fortunately, you can reduce and even avoid some closing costs, saving hundreds to thousands of dollars. Here is a brief guide on reducing real estate closing costs.
Reducible Real Estate Closing Costs
Some closing costs are mandatory and non-negotiable, depending on the state. Fortunately, you can negotiate or even avoid the following closing costs:
- Application Fee: Most lenders charge a fee when you apply for a mortgage. However, the fees vary from one lender to another, and some lenders don’t charge application fees. As such, shop around and compare different lenders’ fees.
- Origination Fee: Additionally, lenders charge a fee for creating your mortgage and processing the necessary documents. The fees range from 0.5% to 1% of the mortgage amount, so shop around and compare different lenders’ charges.
- Agent’s Commission: Buyers’ and sellers’ real estate agents charge about 6% of the overall cost for their services. Fortunately, some agents are open to negotiating.
- Attorney Fees: Some states require you to hire an attorney to process legally binding real estate contracts. Attorney fees vary from one lawyer or law firm to another, so shopping around helps.
- Home Inspection Fees: A home inspection is an assessment of the condition of its appliances, systems, and overall structure. Home inspection fees vary from one vendor to another, so shop around. Additionally, a home inspection is optional, enabling you to avoid the fee – however, skipping a home inspection is not recommended.
- Property Survey Fees: A property survey is an assessment and measurement of the property’s boundary lines, easements, and hazard areas. Property survey charges vary from one vendor to another and may be negotiable. It is also worth noting that a property survey may be optional, depending on the lender.
- Homeowner’s Insurance: A homeowner’s insurance may be required when buying property on a mortgage. Premiums vary from one insurer to another, so shopping around helps. Additionally, while homeowner’s insurance may be optional, enabling you to avoid the cost, it is still highly recommended because it can save you more money down the line.
- Title Insurance: Title insurance pays for the cost of assessing the property’s history and public records for liens or title discrepancies. The costs vary from one vendor to another. Moreover, you can forego the service to avoid the cost, although it is not recommended.
4 Tips to Reduce Real Estate Closing Costs
Here are four tips to help you reduce or negotiate down and reduce the various closing costs discussed above:
1. Shop Around
Fees for services such as home inspection, title insurance, and property survey vary from one vendor to another. Moreover, mortgage-related fees such as origination and application fees also vary from one lender to another. As such, negotiate with vendors and lenders and shop around to compare different offers.
2. Negotiate with the Seller
Generally, buyers pay more closing costs than sellers. However, you can transfer some of the closing costs to the seller through seller concessions. Moreover, you can lower the overall closing costs by getting the seller to lower the property’s sale price. As such, try negotiating with the seller.
3. Delay Closing Until the End of the Month
Lenders start charging daily interest when you close the sale. To this end, you pay more interest when you close at the start or middle of the month. As such, be patient and wait until the end of the month to close.
4. Consider a No-Closing-Cost Mortgage
A no-closing-cost mortgage rolls over all closing costs into the loan’s principal and deducts them from your interest payments. Essentially, it eliminates the huge burden of making a one-time lump-sum payment, buying you time to work as you pay the closing costs in installments.
Conclusion
Most closing costs are negotiable, and some are avoidable. As such, use the tips recommended above to save hundreds or thousands on your closing costs. Overall, it is advisable to hire a professional accountant to identify and pursue all opportunities for reducing your deal’s closing costs.
