Closing costs for a home average 3 percent of the purchase price and can reach 6 percent in higher-tax areas. But you can ease the pain.
*Have the seller pay closing costs. Plus, you get a tax break for mortgage points the seller pays (each point is 1 percent of the loan amount). Note that there are limits: Freddie Mac and Fannie Mae allow sellers to pick up closing costs worth 6 percent of the purchase price for loans with 10 percent or more down; the Federal Housing Administration allows up to 6 percent; and the Department of Veterans Affairs allows 4 percent.
*Shop loan terms. The “no-cost” mortgage, which rolled most closing costs into your interest rate, has largely disappeared, and lenders have resurrected fees for everything. Charges vary dramatically, so shop and negotiate all the loan terms.
Call three or four lenders for their best rate (preferably without points) and an estimate of their fees (excluding third-party charges and escrow amounts). Apply with the lender that’s offering the best deal to get a good-faith estimate. If you’re refinancing, your current lender may discount fees.
*Pay less for PMI. If your stake in a home is less than 20 percent, you must ante up for private mortgage insurance. Monthly premiums typically cost 0.5 percent to 1.5 percent of your loan amount per year, depending on how much equity you have, your credit score and whether you get a fixed or adjustable-rate loan.
You could negotiate with the seller to pay a single premium upfront, or you could roll that premium into your loan. The downside of taking the larger loan is that you’ll pay more interest. But you can deduct the extra interest and not worry about the limits on deducting PMI premiums. (PMI cancels when your equity reaches 22 percent of the home’s value.)
*Find cheaper title insurance. Title insurance protects against challenges to your ownership, with coverage for your lender and for you. But as much as 80 percent of the premium goes the agent’s commission, so shop for cheaper title insurance. For example, EnTitle Direct (EnTitleDirect.com), which operates in 32 states, charges lower premiums by eliminating the middleman.
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