There are several elements of the home buying process that first-time buyers may be unfamiliar with, and closing costs are one of these. Without sufficient information, buyers may be overwhelmed by closing costs. Fortunately, some buyers may qualify for assistance with these costs.
What Are Closing Costs?
In addition to the cost of the home, buyers are responsible for taxes, property title insurance, and mortgage fees. These are closing costs. Closing costs equal between 2% and 5% of the home’s price in most cases. National closing cost averages ranged between $5,779 (with taxes) and $3,344 (without taxes) in 2018, but homebuyers should be aware that closing costs in states such as New York and Delaware are higher than the national average.
Buyers will be provided with an estimate of closing costs within three days of filing a mortgage application. This estimate may be a range or the precise cost. Closing costs will be confirmed just before the closing date. Closing costs will be due on the closing date and typically come out of a buyer’s down payment.
How to Lower Closing Costs
The first strategy homebuyers can consider to reduce closing costs is to negotiate with the seller. If the sellers are willing to lower the price, closing costs and the required down payment may decrease as well, leaving the buyer with more cash on hand for the closing costs.
Of course, buyers can only negotiate the price of a home down so much. The next strategy is to shop around. Some lenders offer deals on closing costs. Furthermore, buyers may be able to save money by working with a mortgage broker that is associated with their realtor. The buyer may even be able to negotiate with one lender if others offer a better deal.
Closing Cost Assistance
When all other options are exhausted, first-time homebuyers may be able to qualify for assistance with the closing costs or downpayment. These programs are provided by city, state, and even federal governments. Assistance plans come in the form of grants (which buyers do not need to pay back), forgivable second mortgage programs, and matched savings programs. These programs may have income requirements.
Buyers should plan to begin applying for assistance six months before they purchase their first home to ensure there is enough time.