Closing costs for a $400,000 purchase in California will run about $8-10K. If you don’t have this much money saved up in addition to your down payment, there are a few ways you can reduce or eliminate this number.
- Increase your purchase price and ask the seller to credit for all or part of the closing costs. This needs to be done at the beginning of the transaction before the appraisal is ordered. Basically, you are paying for the closing costs as part of the purchase price, and they end up getting wrapped into your loan. This is a great way to go about not paying for these costs out of pocket but sometimes in a very competitive market sellers do not want to do this; they are concerned that the appraisal might not come in high enough and then they will net less money.
- Ask your lender to increase the interest rate and use the rebate to cover closing costs. Again, you are paying for the closing costs over time in the form of a higher interest rate but if you are tight on cash for the purchase then this is a good option to get you in a home. If your lender cannot offer a rebate shop around! You should be able to get at least 1% of the loan amount credited back to you towards the closing cost.
- If there are repairs that need to be done you can ask that the seller give you a credit towards the closing costs instead of having them fix the repair items. Most sellers prefer this because they don’t have to spend the time and money to fix the problems out of their pocket it just comes from the sale proceeds. The downside is that you are left with fixing the items needing repair after you move in.
- If your lender is charging you points or a processing fee shop around. On a purchase you should not need to pay points to buy down your interest rate and many lenders offer lower rates with 0 points. Do not shop around online. When you input your information online it is sold to many lenders, and you get harassing phone calls. It is best to work with a local mortgage broker and to check rates at a credit union. Never let someone run your credit to give you an interest rate. Lenders can pull interest rates without having to run your credit, the rate my change if your credit score is not what you estimate it to be but it will give you a close enough estimate. A point is 1% of the loan amount so if you are getting a loan for $300,000 then I point would equal $3000.00. There Is a big difference in the interest rates and costs from different lenders so it is important to understand that making a few phone calls can potentially save you thousands of dollars. See our article on direct lenders, vs banks, vs brokers to understand this difference.