What is the scoop on settlement and closing costs?
When you buy a home, especially your first home, you may be surprised how much extra you have to pay at closing beyond the price you negotiated with your seller. These added mortgage expenses are called “closing costs.” As a savvy homebuyer, you need to understand these real estate costs and how to keep them under control.
Closing costs will be a little less painful if you keep in mind the following tips:
- Request an estimate of closing costs before you ever apply for a loan. Shop around and obtain multiple estimates of closing costs from the lenders you are considering, just as you would shop interest rates.
- Make sure there is no significant increase in closing costs from the good faith estimate (GFE) to the HUD-1 settlement statement. Research online to determine if the costs are in line with industry standards. Require the lender to explain and justify any fee with which you disagree or that you do not understand.
- Understand that closing costs are negotiable, that you may be able to get them lowered. However, you should also know that when a lender is willing to give you a break on closing costs, they will often simply bump up the interest rate incrementally so that you end up paying about the same amount for the loan over time.
- Ascertain if your seller is willing to pay some or all of the closing costs to keep you as a buyer.
- If it is a strain to come up with closing costs in addition to your down payment, consider increasing the loan amount to cover the difference. For example, if the purchase price is $200,000, you are paying a $40,000 down payment, and closing costs are about $8,000, instead of obtaining a $160,000 loan you may want to request $168,000.