Not only should you prepare for closing costs, you should also plan to negotiate them.
Closing costs are a hidden speed bump in the home purchasing process. Many people are so worn out at that point, that they just pay the closing costs and keep driving ahead at full speed. That's exactly what many lenders and brokers hope that you'll do.
Prepare for the closing costs before you get started and they'll seem like just another part of the process. And the few hundred dollars you save will come in handy when the water heater breaks the first week that you move in!
Check out the following eight tips to start getting an idea of how to cut closing fee costs:
#1: Plan ahead: shop around and get estimates on closing costs from lenders before you get pre-approved for your loan. While you should ultimately look at the closing costs along with other factors like the interest rate, you'll be able to get a ballpark figure of what they should be. Closing costs are generally 3%-5% of the total cost. If they are more than that, you can probably dismiss that lender.
#2: Simply ask the seller to share or pay for the closing costs. It's worth a shot, especially in this economy. If the seller is motivated to close the deal quickly, he or she just might agree to it.
#3: Get a Good Faith Estimate. Your GFE is an estimate of how much the closing costs will come to. According to federal law, the actual individual fees can vary up to 10% from the quoted levels in the GFE. Study your GFE and contest or negotiate any suspicious fees (we'll get to this in later steps). At least a day before closing, ask for you HUD-1 settlement statement. Make sure that this final tally of your closing costs matches the GFE and that no last minute fees have been tacked on.
#4: Ask your broker or lender to explain the closing cost fees to you. If you don't understand what the cost is for, have them tell you. If you can't get a good explanation, that's a sign that the fee is inflated or unnecessary.
#5 Determine what fees are "trash" or "garbage" fees. Are there excessive documenting and processing fees? Lender's inspection fees? Commitment fees? Assumption fees? Document preparation fees? These can likely be lowered or negotiated.
#6 Check to see how much you've been charged for the credit report. Are they charging you $150? It's probably bloated. And if they are sneaking that one by you, there are likely others.
#7 Make sure that you haven't already paid any of the fees. You've probably already paid an appraisal fee. Make sure that they aren't charging you twice.
#8 Title Company fees. Lenders or brokers often have a partnership with a title company. Check out the fee and do a little research to see if you can find a cheaper title company to work with.
It may feel like you are at the mercy of your lender or broker when it comes to things like closing fees. You can't forget, though, that the lender or broker wants the deal to close as much as you do. Remind yourself that you can walk away at any time and it will put you in a much better mental position to negotiate.