How to Reduce Closing Costs Effectively
By Sadiya Anjum
Closing costs can be anywhere between 3% and 6% of your total loan amount. This is a huge sum of money that you will have to produce on closing day. Closing costs include a whole load of items from attorney fees, and title search to courier fees and pest inspection. There can easily be above 20 items that are included as closing costs. Some items are not that expensive and some can run up to a thousand dollars.
Since closing costs are a substantial sum it makes sense to try and reduce costs as much as possible. Look at all the items; ask your mortgage broker/ lender to explain each one of them and see where you can cut back. Since closing takes some time, you can utilize this period to cut back on closing costs.
There are a few tips that can help you reduce closing costs but they depend on each personís situation. It is most likely that you will have to get a survey done. Either use a recent survey that was conducted or if this is not possible, hunt for a surveyor who charges less. Surveyors are all state licensed and are quite capable of doing their job, hence you can cut back in this aspect. Same goes for title search; you do not have to hire an expert to do this job.
If you require an attorney then look for those from smaller firms as they are economical. An attorney should be experienced in real estate and does not need to have big names attached to him. Home Inspection on the other hand needs a qualified man to do the job. But you do not have to hire the best in the industry; just someone with experience and who does not charge an elaborate fee. If you are hiring a mortgage broker, check on the commission he will charge. If you have a good credit score then going to a bank or mortgage lender directly may be a better option.
Going for a zero-point option or reducing points can make a huge different to closing costs. Each point is 1% of the loan amount. Paying points may help reduce your interest rate. But if you are running short of money for closing costs, then you may consider paying for lesser or no points. This depends on the mortgage you have chosen and your financial situation. However consider reducing the points and instead adding to the down payment. This way you will be reducing the loan balance itself and you will get better rates and terms with a higher down payment.
It may not be possible to bring down your closing costs to nil but it is possible to reduce the overall amount. Taking care of every single small item (such as courier fees) may make a big difference towards the whole sum. So pay close attention to all the items and try to cut back where it is possible.
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