NO closing costs?? Wouldn’t that be nice!
March 21, 2023
There is a way....
When you buy a home there’s these pesky things called closing costs. This cost is primarily made up of third party fees such as taxes, title work, and appraisal fees. These government mandated costs ensure that the home qualifies for financing, a small key component when buying a home.
And although unavoidable, they can be minimized in three main ways.
- Lender Credits
Lender credits are money the lender gives you to cover closing costs, and while it is free money, it does come with a catch. In order to get lender credits, you have to accept a higher rate, and while this doesn’t sound so good, it still might be a good idea for a buyer who is cash-conscious and wants to do everything possible to lower their closing costs.
When considering a lender credit for a specific amount, ask your loan officer how high the rate would be if you were to get a lender credit of $______ amount; then compare the difference of the two payments to see if it’s worth it. You can usually switch rates and lender credits after you lock in a rate. So, if some life event happens after you’ve locked in your rate and you need the cash for something else, you can go with a higher rate and lower closing costs easily.
Example on a $250,000 30 year fixed rate home loan:
5% fixed rate
$1,342 principle and interest payment
$5,000 est. closing costs
Option B w/ lender credit
5.375% fixed rate
$1,400 principle and interest payment
$4,000 est. closing costs
Pros: Save $1,000 on closing costs
Cons: Pay $58 more per month
- Seller Credits
Seller credits are very popular and are money the seller gives you to cover closing costs. They can be up to 9% of the sales price depending on how much money you’re putting down. Unlike a lender credit that raises your interest rate, a seller credit will not raise your rate. It will however, lower the amount of money the seller gets at closing. The reason seller credits are popular is because sellers want to sell their home, and if they need to sweeten the deal a little to get it done, they usually will.
$5,000 est. closing costs
- $1,500 seller credit
= $3,500 new est. closing costs
- Save More
I know this might sound obvious, but it’s true. People buy homes at their own pace, when they’re ready to buy. You’re not competing with anyone else so do it when you’re ready to do it. If you have a goal in mind, set a savings budget goal and discipline yourself to make it happen. Have the attitude that if it’s to be it’s up to me. No one else can do it for you. You have to do it yourself.
Saving more for the down payment and closing costs will benefit you in the long run as you pay your home off over time. Paying on a home loan is something that takes time, a lot of time. Buying a home isn’t cheap, and although we try and make it as affordable as possible, this is still by far the biggest purchase of your life; so act accordingly.
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