How to cover closing costs

House key

Unlike a down payment, closing costs aren’t usually the first thing you think about when buying a home, even though the fees could add up to thousands of dollars. Typically, that’s up to five percent of your home purchase to cover the additional expenses like a title search, home appraisal and attorney fees. You can’t eliminate these fees entirely, but there are options for coming up with the money for closing costs.  

Increase your savings

Become a savvy saver and plan ahead for projected costs. You’ll be able to cover your costs with cash and not have to worry about a larger loan or the added interest payments that go along with it. Since your lender must provide a “good faith estimate,” use it to help set your savings goal.

Ask the seller to help with closing costs

It’s not uncommon for the buyer and seller to negotiate on closing costs. Offer the seller a little more than the agreed-upon sales price, then ask to use the extra funds to offset closing costs. This could help close the gap between what you’ve saved and what you may still need. The seller may want to contact a tax professional for guidance to receive a tax deduction when closing costs are offset.

The sellers can help even more if you use their current title to perform the title search. Your attorney can search from the point of the last title issued. That’s the time lived in the home and not the home’s entire lifespan. This means less work and lower attorney’s fees, saving you a little more at the end.

Increase your home loan to pay for closing costs

Haven’t saved enough or prefer to use your savings for other home expenses? Add your closing costs to your home mortgage loan. You’ll increase the amount borrowed and your monthly payment, but you’ll have your costs covered. The increase may not be much, but you’ll want to be sure the added cost fits in your budget.

Close at the end of the month

When it comes to a great deal, acting sooner rather than later is usually the right way to save money. The opposite is true with closing costs. That’s because the clock starts ticking on interest payments from the day you sign until the last day of the month. For example, if you close on June 1, you’ll be responsible for the all of the interest accrued from June 1 to June 30. However, if you close on June 29, you’ll only have to pay interest for June 29 and 30. That’s two days of accumulated interest versus 30 days.

Find special programs

If you’ve never owned a home before or you haven’t owned a home in the past three years, you may qualify and be eligible for special loans and grants as a first-time homebuyer.

LGFCU has a First-Time Homebuyers Loan with an option for an extra $2,000 in financing to help with closing costs.

First-time homebuyers also may be eligible for a Federal Home Loan Bank of Atlanta (FHLBA) grant. With this First-time Homebuyer Program, you could receive grant funds in the form of forgivable second mortgages up to $5,000 to assist you with down payment and closing costs.                   

As you budget for your home purchase, remember these five tips and include saving money for closing costs.

The advice provided is for informational purposes only. Contact your financial advisor for additional guidance.This article originally appeard July 2016.

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