Studies show that the closing costs, which can average 1 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save:
* Negotiate with the seller to pay all or part of the closing costs. This obviously reduces the net proceeds they will receive so if you are asking for closing cost concessions, you may end up paying more for the house than you would have otherwise.
* Get a no-point loan. The trade-off is a higher interest rate on the loan and some loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
* Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application. Your Realtor should be able to give you a great deal of insight on the best lender for your particular needs. They're not all the same!
* Get seller financing. Ocassionally the seller can carry the loan themselves instead of getting their cash out of it. This is a great opportunity for the seller to make additional money in interest and this kind of arrangement usually does not entail traditional loan fees or charges.
* Rent the property in which you are interested with an option to buy - often called a lease-option. You normally need some money up front because sellers have the bulk of the closing costs in these transactions and seldom will they pay money to give you the opportunity to "rent" their property for a period of time in hopes that everything will work out and you will purchase it from them down the road. These transactions can be very flexible however and a win-win for everyone. Elicit the help of an expert before you go in this direction, however, so they let you know some of the possible pitfalls up front.
What are closing costs?
Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.
Who pays the closing costs?
Both parties have some closing costs. Typically in Western Montana, the seller pays all the real estate professional fees, the title insurance, and one-half of the title company closing fees. (Taxes are paid in arrears in Montana also so taxes always show up on a settlement statement to bring them current to the date of closing.) Buyers have one-half of the title company closing fees and filing fees.
If a loan is involved, there are numerous fees including things such as credit reports, appraisals, flood certfications and numerous other fees. These will vary from lender to lender. You should receive a good faith deposit right in the beginning so you know approximately what your total closing costs will be.
Why do I need a title report?
The title company will research all county records and let you know whether there are any liens on the property or clouds on the title. It is customary in Montana for sellers to provide a standard title insurance policy for a buyer. (Buyers may purchase additional coverage in some areas if they are concerned.) A lender will require a standard policy plus several additional riders to cover them which the buyer pays for. Title policies will disclose interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.
Where do I get information about closing costs?
For more on closing costs generally ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or for specific questions about closing costs in Montana call Vinda at 406-777-0710.