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5 Ways to Reduce Closing Costs

by US Mortgages / January 11, 2021

It’s easy to get overwhelmed when you think about saving for a down payment and paying closing costs on a loan. It holds many people back from buying a home, but here are 5 ways to reduce closing costs and they are easier than most people think.

1. Negotiate Closing Costs

First, know that you can negotiate closing costs and SHOULD. Get quotes from three or more lenders and compare the Loan Estimate they provide. Look at page 2 and compare all closing costs determining which lender offers the lowest costs.

If you like one lender better than another, negotiate the costs. Chances are a lender will lower costs if they can win your business rather than letting you go to another lender.

 

2. Ask the Seller for Help to Reduce Closing Costs

Believe it or not, sellers often help with closing costs. Here’s how.

You negotiate closing cost assistance in your contract. The seller increases the home’s sales price by the amount they agree to help reduce your cash outlay. At the closing, the seller credits you the agreed upon amount and you pay less money out of pocket for the closing costs.

Looking to learn more about your first mortgage, read our 4 Simple Steps to Buying your First Home

 

3. Roll Closing Costs into your Mortgage

If you have room in your mortgage, some lenders let you fold the costs into your loan. It all depends on the value of the home you’re buying. If you’re able to score a deal on the home’s sales price, leaving room in the value to fold in the closing costs, you reduce your cash outlay.

This increases your mortgage payment slightly, so keep that in mind. For many borrowers, though, paying less money at the closing is their goal.

 

4. Close at the End of the Month

A big part of your closing costs is the per diem interest you pay. No matter when you close, you’ll pay interest for the days you own the home but don’t owe a mortgage payment yet. If you close at the end of the month, you’ll only owe a few days of interest versus if you close at the start of the month and owe an entire month’s interest at the closing.

 

5. Don’t Pay Discount Points

If you time your purchase well, you may secure a low enough interest rate that you don’t need to pay discount points. Remember, discount points aren’t required – they are the borrower’s choice if you want to lower your rate. In today’s rate environment, there’s no need to pay for a lower rate since they are lower than they’ve been in decades.

 

Know how to Reduce Closing Costs Before you Buy a Home

Don’t buy a home without knowing how to reduce the closing costs. There are many ways you can make the most of your loan by reducing the cash outlay at the closing. Save the money for your mortgage payments and reserves. Read our guide on home buying with no down payment

Homeownership opens up a whole new world – one that you’re responsible to pay no matter what happens. Save your cash for those rainy days.

Tags: Down Payment Home Buying

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