When you head to the loan office to close on your home, you are going to need more than just the money for your down payment. You will also need to pay closing costs. These are the costs of the loan and the sale of the home. While closing costs are unavoidable, they can be reduced if you know what to expect beforehand.
Typical Closing Costs
Closing costs are the fees and taxes associated with getting a loan and the actual sale of the house. Some are negotiable, while others are required by law. Here are some typical costs you will need to pay:
* Property taxes: 2 to 3 months worth for escrow
* Mortgage insurance: protection for the lender if you default
* Homeowner’s insurance: 2 to 3 months worth for escrow
* Loan points: points you pay upfront to lower the interest rate on your loan
* Loan origination fee: fee for preparing the loan
* Appraisal fee: fee for the appraisal the lender orders
* Credit report fee: fee for attaining a copy of your credit rating
* Title search and insurance: fee for searching for information on the property’s ownership history
* Home inspection: some states require a home inspection before the sale of the property
There are also numerous miscellaneous fees you may be charged, such as processing, document stamp tax, survey fees, deed recording, document preparation, underwriting, and attorney fees.
How to Lower Closing Costs
Closing costs for a Santa Cruz property are going to be steep, so make sure you are only paying what you have to pay. Ask for your closing costs to be itemized for you, and question anything that does not appear to be a required cost. For instance, “processing fees” may be negotiable, particularly if you have another lender on hand that will offer you a better deal.
Consider doing some things on your own. For instance, you may be able to have the home inspected and appraised on your own. Using your own appraiser may be more affordable than using the one the lender works with, so ask your lender if they will accept outside appraisals. The same is true for insurance. You may be able to get lower insurance costs by shopping on your own for mortgage or title insurance.
The more you put down on your home, the lower the closing costs will be, as many of them are based on the final value of the loan. Put as much down on the property as you can, while saving yourself enough money to pay for your actual move.
You can also lower your closing costs by not paying points. However, you will need to determine whether or not this is cost-effective. You may find that the higher interest rate will cost you more over the life of the loan than the immediate cost of the points.
Finally, consider asking the seller to split the closing costs with you. If the seller is in a position where they need to sell quickly and this will close the deal for them, they are often willing to comply. Don’t suggest this, however, if there are other offers on the table for the property, unless you are offering at least full price or more for the property.
Seb Frey is a Capitola, California Real Estate Broker specializing in Santa Cruz Real Estate. He is fluent in Spanish and enjoys helping people find their piece of the American Dream in Santa Cruz. You can find Seb’s blog at SantaCruzHomeBroker.com/blog.
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