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Knowing how to save thousands on closing costs when completing the mortgage process can be a relief to both your sanity and your wallet. Being that the average mortgage in America in 2010 costs well above $200,000, the required additional fees for closing, escrow, etc. can easily add up into the thousands. Below are a few of the most surefire ways to keep closing costs to a minimum:
Cheaper Title Insurance
Being that nearly 80% of the premium paid goes directly to the title agent's commission, it will certainly behoove you to look for cheaper title insurance. The purpose of title insurance is to protect both you (the borrower) and the lender from challenges to your ownership, but it need not cost you very much.
A new trend in the online mortgage industry is the growth of title insurance providers who supply insurance without agents, thus completely eliminating the costly commission paid to them in a traditional arrangement. In fact, switching to such a company can reduce your payment by over 35%.
Negotiating Loan Terms & Rates
Yes, we all know that the insurance rate you pay on your mortgage loan is the most important number in the entire process. But there are a whole host of other terms you need to shop around for if you plan on paying as little as possible. This is especially doable nowadays when approved buyers have much more leverage than they used to in the past.
The best way to go about this is to contact multiple lenders (preferably three or four) and ask for an estimate of their fees. Once all your questions and concerns have been answered, apply with the lender who offers the best rate to get an estimate. If you are willing to splurge a bit more, also apply with the lender offering the second best rate and try to get them to compete for your business. You will walk away a winner every time!
Private Mortgage Insurance
Private mortgage insurance (PMI) is required for anyone who owns less than 20% of their home's value. Because the rate at which PMI is charged can run between 0.5% and 1.5% of the total loan each year, it is certainly in your best interests to try to pay as little as possible in PMI. The rate you pay is calculated according to various factors, including your equity, your credit score and the type of rate applicable to your mortgage (fixed vs. adjustable).
As always, you should do everything in your power to raise your credit score. It not only improves your chances of getting a loan in the future, but it allows you to pay less in interest and tells lenders that you take your finances seriously. The higher your score, the less you will pay in PMI.
Seller Pays Closing Costs
This may seem like an odd way to reduce your closing costs, but many sellers will in fact help buyers by paying the closing costs if it seals the deal. There are other incentives as well, such as tax break for mortgage points paid by the seller.
You can also tell the seller to raise the asking price of the home if you cannot afford the closing costs but can afford a larger mortgage. Once the loan is approved, you can pay the closing costs with the extra funds from the larger mortgage. Sometimes it pays to be creative!
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