How Can I Lower My Closing Costs?

Closing costs are those costs associated with the purchase of a home that go beyond what you are providing as a down payment.

These costs can include appraisals, lender fees, attorney fees, tax reserves, recording fees, and other miscellaneous fees.

While these fees normally aren’t negotiated in the purchase process, there are two tools you can use to reduce the amount of money you will need to bring to closing.

The first option is seller credits. You and your real estate agent can negotiate these with the seller. In exchange for an increased sales price, the seller will agree to pay that same amount of your closing costs, reducing the amount of money you’ll need at closing. For example, you agree to pay $2,000 more for the home, and the seller will pay $2,000 of your closing costs.

There are limits to how much a seller is able to provide to you as a credit, based on the loan program (such as FHA or conventional). I can give you more details on specific loan programs if you’d like more information.

It’s important to keep in mind that these credits may only be applied to closing costs and never toward a down payment. Down payments must come from your own funds or in the form of a gift from a qualified source, such as a family member.

Additionally, the seller credit scenario will work well if the seller is highly motivated to sell the property, but less so if the seller has multiple offers.

Buyers can also make similar arrangements with their lenders. In exchange for a slightly higher interest rate, the lender can credit back some of the fees they charge, meaning you will need less money at the closing table.

If you would like to know more about how these credits work, please feel free to give me a call.

Why Does My Lender Need So Much Documentation?

When you take out a mortgage, the process is straightforward: you start with the application and provide whatever documentation your lender asks of you, and they review it. If all goes well, at the end of this process, you’ll have a mortgage.

While you see this procedure from the consumer’s perspective, your lender sees it from the investors’ point of view. Soon after you sign the closing papers, the lender will likely sell your mortgage (along with many others like it) to investors.

This is called mortgage bundling, and this is what keeps the funds flowing back and forth between lenders and investors.

Investors send money to lenders, who send loans back to them so they can send more money.

What does this mean for you as a consumer? It means your lender must make detailed efforts while putting together your mortgage file. They must ensure it will pass an investor audit so it can be sold to investors.

If the file has too many defects (missing or incorrect documentation or lack of compliance with laws), investors can decline the file. This is the last thing any lender wants.

To avoid this situation, lenders are extra careful when they are putting together your file, and they will go out of their way to make sure it is of adequate quality.

Often, this means requesting additional information and documentation from you.

Please let me know if I can answer any additional questions you have about this process. I’m here to help.