When you get a mortgage, you generally need a down payment
at closing. That down payment could be as much as 20% of your home's purchase
price. It can be higher if you choose (though lenders generally don't require
more than 20% down). But that's not the only cash you bring to your closing --
you also have to come up with closing costs.
Closing costs are the various fees to finalize your home
loan. They include, but definitely aren't limited to:
Loan origination fees
Appraisal fees
Title search and insurance
Recording fees
Closing costs are typically 2% to 5% of your mortgage
amount. Last year, the average closing costs in the U.S. came to $5,749
including prepaid property taxes. Property taxes on homes are generally paid in
advance quarterly, so when you sign a mortgage, you pay your prorated share.
Without prepaid taxes, average closing costs last year came to $3,339.
That's a lot of extra money to come up with at your mortgage
signing, especially if you just managed to come up with your required down
payment. If you're having trouble swinging those closing costs, here are some
options to look at.
1. Roll your closing costs into your mortgage
Many lenders allow you to roll your closing fees into your
loan rather than pay them up front. The upside of doing so is that you don't
need more money at the closing. The downside is that this adds to your mortgage
total, making your monthly payments higher. But think about it this way: If
you're borrowing, say, $200,000 to buy a home and paying it off over 15 to 30
years, adding $5,000 or so to that figure isn't going to make a huge difference
in your monthly amount.
2. Negotiate your closing costs
Some closing costs are non-negotiable. Your property taxes,
for example, aren't determined by your lender -- they're determined by your
town, and your lender doesn't get any of your advance payment. Similarly, all
mortgages are recorded as a matter of public record, and there's a fee
associated with that which your lender can't control.
On the other hand, there are certain costs you can ask your
lender to come down on. For example, your loan origination and application fees
are at your lender's discretion, so you can ask for a break there.
3. Cover certain costs yourself
To close on a mortgage, you need a title search to make sure
you have the right to buy the home in question and that no one else has a claim
to it. Your lender can take care of this for you, but if you're willing to do
the work yourself, you might save a little money. Similarly, your lender may
allow you to hire your own appraiser to assign a value to your home, and doing
so could be cheaper than using your lender's appraiser. Make sure this is
acceptable to your lender before going this route.
Closing costs can be an expensive part of getting a
mortgage, so be prepared to handle them one way or another. It helps to know
what your options are if you can't quite manage those fees by the time you're
ready to finalize your home loan.
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