Cutting Down On Your Closing Costs

You’re closing on your new house and you sit down at the big conference table for settlement. As you get ready to sign your closing paperwork, you discover the closing costs add up to a lot more than you thought. Are the fees right, you wonder? Do they match the good-faith estimate of settlement fees your lender provided? And do you have to pay all of these fees?

Unfortunately, it may be a little late at this stage. However, if you do your homework ahead of time—and ask your lender questions—you may be able to avoid or reduce certain fees and charges at settlement. Here are a few simple ways to cut down on your closing costs:

Close at the end of the month.  Since all mortgages are due on the first of the month, you will have to pay interest from the day of your closing until the end of the month. This is called pre-paid interest. By closing as close to the end of the month as possible, you can reduce the amount of pre-paid interest due. Keep in mind, however, that other home-buyers may be trying the same strategy and scheduling your closing at the end of the month may be difficult.

Determine the type of appraisal you will need.  Depending on the type of loan and your down payment, you may not need a full-blown appraisal on your home. Make sure you check with your lender to see what kind of appraisal you’ll need for the type of loan you’re getting. Also, if you’re refinancing and your last appraisal was less than 12 months ago, have your lender ask for a recertification of value from the last appraisal.

You may be eligible for  a discount.  Many title companies also own their own escrow or closing companies and you may get a discount by using them. Although many of these settlement discounts often apply only to new home loans, it never hurts to ask whether you’re eligible or not.

Apply for a home-equity line of credit at the same time.  If you plan on taking out a home-equity line of credit at some point in the future, you may want to consider taking out line of credit at the same time as your home loan. If you apply for both at the same time you can avoid paying the additional fees you would have to pay when you file a separate application later.

Roll the closing costs into the home loan.  If you are refinancing, you might consider rolling your closing costs into your loan. Although you will be paying interest on the closing costs, this option may be right for you if you don’t have a lot of cash at the time of settlement or simply don’t want to pay a lot at once.

The key to cutting costs is to do a little research ahead of time. You should always ask for a HUD-1 form that details your final settlement fees. Lenders are required to provide this to you 24 hours before closing. The HUD-1 form should somewhat match the good-faith estimate your lender provided. And, as always, if you’re unsure about a fee, don’t be afraid to ask questions. Otherwise, you may end up paying for more than you planned.  ∆