If you're gearing up to buy a home, one bitter pill you've got to swallow is that you don't just have to pay for the house itself. You'll also need to open your swiftly slimming wallet for a myriad of costs, fees, and taxes -- the infamous closing costs. It's a wide variety of fees that average more than $2,500 on a $200,000 loan. Gulp!
After the stress of house hunting and the anxiety of the offer, you might feel like you can't handle yet another hurdle. But closing costs are an inevitable part of the purchase process. Happily, there's often wiggle room -- at least on the costs that could be covered by the seller. We'll give you the lowdown on all of the gritty details in this installment of the 2016 Home-Buying Guide. Learn about what goes into your closing costs -- and, even more important, how to whittle them down to size.
Inspection and appraisal fees
You won't have much luck lowering appraisal fees -- since the lender selects the appraiser, you'll likely be stuck paying their costs without much room to negotiate. The home inspector offers more flexibility: Compare a variety of quotes to find the cheapest option. You even might be able to persuade the seller to cover some of these fees, depending on your market (this is less likely in a red-hot market). Granted, you won't be saving a ton of money here, considering the average home inspection costs $300 to $500, but a couple of hundred extra never hurts.
Let's hope you paid careful attention when shopping for your mortgage: Different lenders require different fees, and buyers should keep an eye out for " junk fees" like for the application, credit check, processing, and even the frustrating but all too common "miscellaneous" fee.
Also take a close look at the loan estimate you receive from your lender at the beginning of the process and compare it with the closing disclosure statement, which you'll get three days before your scheduled closing. Make sure no unexpected charges snuck their way onto your bill.
If you decided to pay for discount points at closing to lower your interest rate, well, the bill is due. However, with the current low interest rates, that might not make sense for many buyers anyhow.
No, you can't negotiate the existence of home insurance (most lenders require it to proceed with the loan), but you can certainly shop around. With the average premium stretching to $1,034 in 2015, your insurance will be a large cost regardless -- but researching companies and comparing quotes goes a long way toward decreasing your expenses.
In many states, title insurance is a lender mandate that protects your ownership of the property, heading off a number of unsavory situations such as fraudulent claims, courthouse errors, liens, and family disputes. If your lender requires you to purchase title insurance, you can shop around for a better quote. Unlike home insurance, title insurance is a one-time fee, which can make its high cost (the average buyer pays $3.50 per $1,000 of purchase price) easier to swallow.
Sometimes, the seller will pay for title insurance; however, this is uncommon and may not be the norm in your state. Consult with your real estate agent to determine if this is an option for you.
Sneaky, sneaky: One easy way to avoid paying a mountain of closing costs is by asking the seller to cover some or all of the fees. You might not have much luck in a red-hot market, but then again, a seller might agree to cover closing costs if she is able to get the selling price she wants. This works for buyers who might be short on cash but can handle adding a bit more to their loan balance. FHA loans allow sellers to contribute up to 6% toward closing costs; VA loans allow 4%, and conventional loans permit 3% to 6%.
Most experts recommend closing on a house at the end of the month. Closing costs also include any interest that accumulates before the end of the current month -- so closing on the 29th rather than the 1st of the next month will save you money.
But before you sign on the dotted line, there is one more consideration that might affect your closing costs -- or even the entire purchase. Next up on realtor.com's 2016 Home-Buying Guide: the final walk-through!