Tips to Reduce Your Closing Costs
As our Utah spring and a new home buying season approaches, the New York Times reminds us, in a great new article, that homebuyers can reduce their closing closts. Many Salt Lake City home buyers will begin the process of shopping for not only a home but for a mortgage as well.
While many buyers focus their negotiating efforts on getting the best price on a home and securing the lowest interest rate possible, they often forget they can take steps to reduce the costs associated with finalizing the transaction.
The Federal Reserve estimates closing costs can range from 3 to 6 percent of the price of a home. On a $190,000 mortgage amount with a 5 percent down payment, the Federal Reserve says the closing costs can range anywhere from $6,235 and $19,930.
These costs can be extremely high and are worth a shot at reducing them. The number one tip for keeping closing costs under control is simply 'old-fashioned haggling.' Many consumers don't realize that many of the Utah lender's fees are actually negotiable. It's a smart move to gather estimates from multiple lenders and ask questions about the fees being charged.
A second tip is to understand the new Truth-in-Lending rules. Beginning in January 2010, the government now requires lenders to provide consumers with a Good Faith Estimate within three days of submission of a formal loan application. The new Good Faith Estimate provides home buyers a clear view o what it will cost to get a loan and the price of other services associated with getting a mortgage.
The Good Faith Estimate allows for easier home loan shopping. Prior to its implemenation, side by side comparisons of costs were extremely difficult because the fees had a variety of names. Now the origination charges are listed in an easy-to-understand box that's comparable across multiple lenders. There's also information about what required services borrowers can shop for on their own rather than using the lender's vendor.
Just because lenders are required to provide a Good Faith Estimate to the consumer, it doesn't obligate the consumer to use that particular lender. In fact the new Good Faith Estimate has a 'shopping cart' section that encourages consumers to compare the terms and fees for multiple loans.
Mortgage shoppers should also note that once they decide to move forward with a loan, as presented on a lender's Good Faith Estimate, the fees cannot drastically change when they're ready to close. In fact, there are three categories of fees: those that cannot increase at settlement, those that can increase by as much as 10% at settlement and the charges that can change at settlement. The actual lender's charges are not allowed to change, but services from vendors selected by the lender can only increase up to 10% and services the borrower shops for can change.
The consumer will now know what their closing costs will be prior to getting to the closing table, which makes it a bit easier to negotiate the closing costs. It should be noted that some lenders are providing informal worksheets when there isn't an actual loan application. These may be helpful in the beginning stages, but consumers should know the difference between a worksheet and a real Good Faith Estimate, due to the worksheet not being held to the same standards or rules. This means the fees displayed on a worksheet could change.
Bottom line with reducing your closing costs is simply, don't be afraid to ask for a lower price. There isn't anything in the Good Faith Estimate that prevents a lender from overestimating, so it's to the consumers's advantage to drive a hard bargain, especially when hundreds of dollars are at stake.
Contact your Salt Lake City Realtor, Holladay Realtor, Murray Realtor, Sandy Realtor, Draper Realtor, West Jordan Realtor, South Jordan Realtor, Park City Realtor or Bountiful Realtor to learn more about saving on closing costs.
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