Real Estate Reality: How to Get Your Closing Costs Covered

One of the most exciting and stressful experiences that you will encounter in life is purchasing a home. There is nothing like a fresh start in a new home to open up a world of possibilities and to drain your pocketbook. As if saving the down payment is not enough, then there are closing costs to pay. The good news is that there are a couple of ways around paying the closing costs yourself.

Negotiate for the Seller to Pay Closing Costs

While the idea of negotiating for a large sum of money to be paid by a total stranger may seem daunting, it helps to realize that sellers pay closing costs for buyers every day. If you approach the negotiation with the realization that the seller has a number in mind that they expect to get, then the idea of simply adding your closing costs on top of that number as an offer price does not seem like such a big request. Everybody wins.

There are two ways to negotiate this type of real estate deal. You can make an offer on the home first without closing costs included, negotiating back and forth until you arrive at the seller’s lowest price, and then agree to the price plus closing costs. Rarely will a seller balk at adding closing costs on top of the price they want since it does not impact the bottom-line number they take away from the sale. By negotiating with a focus on purchase price first, it is easier to come to an agreement, before complicating the negotiation with two different numbers to worry about when adding in the closing costs request.

The other way to negotiate a contract with the seller is to include closing costs upfront in the contract as you begin negotiation. Sellers are typically fine with paying closing costs as long as they get what they want out of the transaction. You can opt for this type of negotiation if you feel more comfortable putting all of your cards on the table upfront. Some buyers believe this second option seems more straightforward.

When estimating closing costs to plug into the contract, use a couple of good quotes from reputable lenders. 3 percent should be the maximum amount charged for lender’s fees. When comparing lender fees, it is important to keep in mind that fixed third-party fees should be about the same with all lenders. Considering this fact, comparing the lender’s fees will be the best way to narrow down costs and the best lenders.

No-Closing-Cost Mortgage

Another way to skip out on paying your closing costs is to obtain a no-closing-cost loan. Many lenders offer this option. It is hard to believe that any homebuyer would pay closing costs if they did not have to, but of course this type of loan comes at a cost. As the saying goes, “there are no free lunches.” According to Bankrate, homebuyers that elect to sign up for this type of mortgage will pay a higher rate. The higher rate effectively allows the bank to financially justify assuming the closing cost expense.

Cash Flow Factors to Consider

If you choose to have the seller pay the closing costs and you come up short at closing, remember that you have some extra time to pay your first mortgage payment. You usually have about 45 day before your first payment is due. For some buyers that extra money can be budgeted for closing costs.

Conclusion

Savvy homebuyers are willing to do their financing homework. It is important to remember that paying closing costs is optional in most cases. When cash is tight, let the seller or lender pay.