Home buying has costs associated with it. Not only is there often a mortgage, but you’ll also have something known as closing costs. These fees are a part of the home buying process and they are due at the time the mortgage is finalized with a small amount often required upfront, such as securing an appraisal by the lender. It’s difficult if not impossible to negotiate any upfront costs and reduce the expense as they are fees charged by third party vendors, but there are a couple options available to home buyers who might have limited funds.
If you are thinking of buying a home here are a few helpful tips to minimizing our out of pocket expenses.
If you’re using mortgage financing to purchase a home ask your lender to offer you a couple good faith estimates on any loan programs you’re interested in that discloses the closing cost you’ll be required to pay and one that covers closing cost that closing cost is paid by the lender. Normally a lender will charge you a small increase in interest rate, but they’ll offset some or all of your closing cost including prepaid fees like property taxes and insurance you’d normally have to come up with at closing. By having two good faith estimates and an amortization schedule you can get busy comparing and seeing which option is right for you.
Personally, I’m a big fan for lender paid closing cost, because it allows you to keep your cash in a rainy day fund and with interest rates this low every $1000 the lender offers as a lender credit can often be paid back at under $5.00 a month in an increase house payment. Be sure to compare all of your options with your real estate agent to ensure that you’re getting the best possible deal and paying the least amount in fees and interest.
Don’t be lured in by low discount points, but high fees. Remember a cost is a cost and what it’s called really doesn’t matter, because all money is green. If you’re comparing lender rates and fees you’ll need to compare the rate offered; lender fees and don’t concern yourself with third party fees like title insurance, appraisal fees or survey cost. What you’re look for is the interest rate, discount & origination fees and any lender fees charged like an underwriting fees, processing fees and lender doc prep fees.
If all this still sounds a little confusing don’t be afraid to as the loan officer questions and if you’re still confused ask your real estate agent to help you review your good faith estimates with you. Real estate agents have a lot of experience with good faith estimates and if you explain to them what you’re looking for and your financial situation a real estate agent can give you an honest independent opinion of what appears best for you.
Another option is a term call seller concessions and something your real estate agent can help you with.
Seller concessions are a common tools using in negotiating a purchase price. Although sellers aren’t obligated to provide them, many will if asked and it’s simply away the seller can legitimately assist you in financing your home purchase. Lenders generally set a percentage of how much seller concessions they will accept when financing a home, but it’s a pretty high bar and generally many loan programs allow up to six percent, while USDA Home Loan have not set limits.
It takes a good negotiator to get a seller to offer any concessions and just one reason why you need a real estate agent. And, of course you want to get the best price, but price isn’t everything. Sometimes it’s simply a better deal to offer a little more than you intended, but ask for the seller to offer a little in concessions. Doing so can be just one additional way to minimize your out of pocket expenses. There’s no real science to it and the practice is an art a good real estate agent knows how to do, otherwise I’d give you the science behind it here.
With a little preparation now, you can find a great home and the best mortgage product that fits your needs. Happy house hunting!
A SIMPLE HOME SHOPPING INSPECTION TOOL
Organizing your home shopping experience affords a wise decision making process. This simple home inspection tool makes your ultimate buying decision a smart one. To print this document click on “Open in New Window” located at the lower right corner; click on “File”; then click on “Print”. In the center of the screen you will have the option to “Create A Printable PDF of the Presentation”.