Closing Costs - How much can I save on them?

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, which is rare, they must be paid when the home is closed. Don't trust "no closing costs" ads - you will pay much more for this option because closing costs are added on a top of the loan.

Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save:

  • Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller.
  • Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
  • Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront.
  • Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.
  • Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase. Now it is a very popular option.
  • Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Look around and make a calls before submitting your final loan application.

How Much Can I Afford?