Have You Saved Enough for Closing Costs?

When people decide to buy a house, they typically focus on saving for a down payment. However, there's something else would-be buyers should think about — the closing costs. Unlike the down payment, closing costs are difficult to negotiate and can be somewhat unpredictable.

What Are Closing Costs and Why Do They Matter?

Closing costs are costs incurred by the buyer to formalize the transfer of ownership of a property. Closing costs include such things as loan origination fees, underwriting fees, title search fees, and title insurance. They are paid directly to the lender and add thousands to the cost of a home.

Paying closing costs is often the last hurdle to be overcome when buying a house. Unfortunately, the closing costs need to be accounted for very quickly. If you cannot pay them within a short time, you will have to wrangle with changes in your mortgage loan APR and other issues.

Plus, a seller has the option of walking on the deal if closing costs are not settled promptly. With that in mind, it's important to start planning for closing costs early in the process.

How to Plan for Closing Costs

Closing costs are a hassle because it is often difficult to get a straight answer about how much they will cost or even what services they'll cover. In fact, some lenders may pump up closing costs with lots of unnecessary fees.

To make sure you save enough for closing costs:

• Get Closing Cost Estimates from Multiple Lenders
  Although closing costs can be mysterious, you can narrow them down by making sure you get an estimate from several different lenders. Three estimates are a good start for triangulating your real closing costs. Plus, it gives you insight into which lender may be best for you.
  
  
• Negotiate Some Part of Closing Costs
  Sellers usually take a hard line against paying any portion of closing costs. However, you can get a concession from your buyer if there are other issues you've discovered, such as repairs that need to be done on the home. Asking for 10, 20 or even 30 percent of closing costs is not unusual.
  
  
• Look for Options from Your Lender
  Lenders often have leeway to offer you options that will reduce the amount of money you have to pay upfront. For example, if you do have the opportunity to tender a big down payment, your closing costs may be rolled into your mortgage. Remember, though, this means paying interest.
  
  
• Partner with Your Real Estate Agent
  Your agent may be able to uncover opportunities to get more concessions from the buyer or secure more funds for your closing.
  
  
• Start Saving Early
  All in all, the best way to control problems with closing costs is to set a savings goal and stick to it early. In general, the more money you have on hand, the less you'll have to worry when buying a house. Cash helps you accelerate the process and save on interest.

Remember, closing costs are the last step — if you're thinking about them, you're almost in your new home. That's something to be proud of, and it's worth one more push to get you there.

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