Saving Money When You Close on a Home Loan

One thing that can be disheartening, especially for a first-time home buyer is the sheer amount of fees charged at closing.  For a typical mortgage loan, closing costs could mean an extra 4% of the total loan amount.  The worst thing is that the extra money that you spend on closing costs doesn’t actually get you anything tangible.  On top of that, if your down payment is less than 20% of the purchase price, you’ll most likely be obligated to pay for mortgage insurance, which can cost you somewhere in the neighborhood of two to four thousand dollars.

Saving money at the closing table is actually easy to do if you do your homework and pay attention to what the mortgage lender is doing and saying.  Here are ten things you can do to avoid overpaying and try to reduce home loan costs.

Take advantage of a seller who is eager to sell.  The market for sellers is taking a bit of a downturn lately, so make the most of a house that has been on the market for a while.  The seller might be willing to split closing costs with you.  After you have negotiated the home price try to get the seller to pay part of the closing costs or points that may be used to reduce your mortgage interest rate.  The impact of seller paid points can lead to a lower mortgage payment over the life of the loan, input various mortgage rates and point options into the mortgage payment calculator to see the difference in the monthly mortgage payment.

If you don’t ask, you don’t get.  If a fee seems like it can be or should be waived, ask.  The worst they can say is no.  Some lenders will give you a discount on fees if you are a first time home buyer.  Get creative- an eager lender or seller can often find some way to reduce your costs.  Even though more mortgage lenders are tightening up, they want your business.  Ask to have certain fees waived on the mortgage loan and the mortgage lender will either accommodate the request or simply say no.  By all means compare the good faith estimate at the time of the application to the loan closing for any discrepancies and hold the mortgage lender or bank accountable.

Don’t apply to too many banks or mortgage lenders.  It costs non-refundable money to have a lender evaluate your credit.  Research each mortgage lender you plan on contacting, run the numbers through the mortgage calculator and make sure you meet their requirements before you apply. 

Know your credit before you shop.  Get a free copy of your credit report so you know what your position is.  If there are any problems or errors, it can take 30 days or more to fix them.  Use the mortgage qualification calculator to evaluate your own debt ratios and avoid the unnecessary costs of applying for the home loan before you improve your position to become approved.

Know how much house you can afford.  Unless you have a 20% down payment, you may be required to carry private mortgage insurance.  Start by looking for a home on which you can afford at least a 20% down payment.  With less than 20% down, the mortgage rate will be higher along with the cost of the mortgage insurance.  The mortgage calculator will help compare the differences in the monthly mortgage payment with and without mortgage insurance.  Check current mortgage rates for loans with 20% down payment and those without to measure the true cost in the mortgage calculators.

Try to take over the old mortgage.  Chances are the previous owner isn’t done paying for the house yet.  If they’re eager to get rid of the house, or the lender is eager for your money, they might let you take over the old mortgage with the same terms.  This can save money in points, rates, and even major closing costs.  Most mortgages are not assumable, though, so check before you offer.

Set up a home inspection as soon as possible.  If anything is broken or needs replaced, make sure you are reimbursed for it before you finish closing.  A quick home inspection saves headaches later and can be used to negotiate a better price if there are deficiencies in the property. 

There is fierce competition for your loan business.  Shop carefully, take stock of all your options, and remember to use the mortgage calculators to compare the true cost of all mortgage quotes and options.  Crunch the numbers with more than one bank and mortgage lender and figure out what is the best deal for you.

Know your rights.  Every lender must provide you with a good faith estimate of closing costs when you qualify for a loan.  Don’t wait until you’re into it- find out what a loan costs up front.

After closing, it is always a good idea to pre-pay your mortgage.  On a $100,000 loan, $25 per month extra can save you over $20,000 over thirty years at 8%.  That’s less than a cup of coffee per day.  The mortgage calculators are good tools to evaluate prepayment options and can even print out various amortization schedules to help visualize the effect of extra payments on a mortgage loan, no matter how small.

Tags: mortgage amortization, mortgage calculator, mortgage lender, mortgage payment calculator, mortgage rates

This entry was posted on Thursday, March 5th, 2009 at 9:20 am and is filed under Mortgage Basics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.