Six Ways To Save On Closing Costs

 

No. 1: Shop around

Mortgage rates aren’t the only thing you need to shop around for when buying a home or refinancing. Getting quotes from several mortgage lenders is the number one piece of advice when it comes to mortgage shopping. Although lenders don't have to provide an estimate before you apply for the loan, you should be able to find lenders who are willing to provide some ballpark figures when it comes to closing costs.

Try to get at least three estimates from local lenders. Speaking to local lenders is extremely important, especially when it comes to closing costs.

No. 2: Know your locale—different areas, different closing costs

Location is very important when it comes to understanding the closing costs associated with your loan. According to the Federal Reserve, a general rule of thumb is to expect closing costs to be roughly 3 percent of your home's price. However, in certain high-tax areas of the country, closing costs can be closer to 5 or 6 percent of the home price.

"Closing costs really depend on what state you're in," says Jim Pendleton, a Long Island, New York-based loan officer with Financial Services of America.

Pendleton, who writes mortgages in all 50 states, recently worked on a loan for a homeowner on the east end of Long Island, where borrowers are subjected to an additional 5 percent mortgage tax. "So their closing costs were closer to 9 percent," Pendleton says.

"But in some states, where there's a flat fee for title insurance, I can close a loan very, very cheaply -- down to about 1 percent of the mortgage," Pendleton adds.

No. 3: Don't pay points when mortgage rates are low?

Homebuyers have the option to pay more points at closing in exchange for a lower interest rate. However, experts say paying points may not be worth it when mortgage rates are already low.

"I would suggest not buying down an interest rate," says Mark Hanley, a mortgage officer in Austin, Texas. Paying upfront discount points can seem unnecessary when rates are really low already, he says.

However, Keith Gumbinger, vice president of HSH.com, says there can be very valid reasons to pay points when mortgage rates are low, especially if you plan on remaining in the home for a long stretch.
No. 4: Shop around for homeowner's insurance

Moira Vahey, spokesperson for the Consumer Financial Protection Bureau (CFPB), says even though the CFPB recently issued rules that "provide consumers with options to avoid costly force-placed insurance," the best way to avoid pricier insurance is to shop around. It'll reduce your closing costs and save you money long-term on your insurance premiums.

To review a list of home insurance carriers, visit Insure.com and search for “best insurance companies.”

No. 5: Review closing-cost forms—negotiate and spot red flags

Take notice of cost estimates that are particularly higher or lower than the rest. If one lender is charging significantly more for a third-party fee than the others, ask about it.

"If one lender is not disclosing a fee that another lender is, ask why," says Hanley. "I have seen competing bids where lenders purposely lowball a tax payment estimate in order to look like their estimate carries an overall lower cash-to-close figure."

Fees charged by the lender also can be negotiated. The best way to know what's negotiable is to ask the lender directly. Also look for "junk" fees, which might be listed as "warehousing fees" or "processing fees" (or other names) and are sometimes a way for unscrupulous lenders to increase their bottom line.

"These are easy to spot because every lender doesn't charge them, so they stick out on estimates," says Lynda Conway, a real estate agent in Austin, Texas.

No. 6: Look for new or added fees

Three business days after submitting your loan application, your mortgage lender is required to provide you with the CFPB’s “Loan Estimate” form which details your loan’s terms, expected fees and closing costs. This new form replaces the “Good Faith Estimate.”