The bill for closing costs is the final hurdle between home buyers and their new homes, and it can represent a surprising chunk of money. Closing fees run between 3% and 6% of the mortgage; that’s around $9,000 to $18,000 on a $300,000 home. (Use this closing costs calculator to estimate fees on your purchase.)
The impulse to just pay up and move in is understandable, but you wouldn’t buy a car or a TV without researching prices on other, similar products. Same goes here. And cutting these costs even a little could help you buy a new stove or outfit the nursery.
Strategy No. 1: Ask lenders for a ‘Loan Estimate’ form
Your closing costs are technically first itemized in the three-page “Loan Estimate” formthat your lender must produce within three business days after you apply for a mortgage. It’s a little-known fact, but some lenders will give you a Loan Estimate form even before you apply for a loan, although it’s not required. (Note: You’ll receive a final “bill,” called a “Closing Disclosure” form, three days before closing.)
The Loan Estimate lets you comparison shop between companies’ total costs and also dig into specific fees once you’ve chosen a lender.
You need the legally binding Loan Estimate to compare costs, not the “closing costs worksheet” or a “fee itemization” that some lenders offer, says Erik Martin, president of Total Mortgage, a national mortgage company based in Milford, Connecticut.
Strategy No. 2: Know where the savings are
The bottom of the first page of the Loan Estimate form shows the total closing costs and cash needed to close the loan. The heart of your savings is Section C, page 2: “Services You Can Shop For.” These fees include:
- Pest inspection
- Title search, which investigates a property’s history for restrictions or liens
- Title insurance binder, which covers the buyer and seller during the transfer process
- Lender’s title policy, which protects a lender in case of a problem with the title
- Settlement agent, also called an escrow agent or closing agent, who represents the buyer and oversees the closing and legal transfer of title
Of these fees, you stand to save most on the priciest services: title insurance and settlement services, which are often combined. Comparison shopping among pest inspectors or surveyors might not uncover great price differences, but it doesn’t hurt to ask.