Your offer has been accepted, your loan approved, and you're on track to owning your new home. The final step is bringing the required cash to close and completing the necessary paperwork. On closing day, you’ll need funds not only for your down payment but also to cover closing costs, which typically range from 2-5% of the home’s purchase price. For a $300,000 loan, that means an additional $6,000 to $15,000 on top of your down payment. Fortunately, there are ways to reduce these upfront costs and make homeownership more accessible. Here are 6 tips you should know to help you minimize the cash to close your loan.
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1. Comparison Shop for Services Listed on Your Loan Estimate
Every mortgage lender must provide you with a loan estimate within three business days of receiving your completed loan application (unless you do not meet their loan requirements). Carefully review your document, paying special attention to the section called "Services You Can Shop For." These services usually include things like survey fees, title fees, and pest inspections. The providers listed on the estimate may be the lender's preferred vendor, but you are not required to use them. You can shop for lower-priced services from other vendors to reduce these costs.
2. Request a Concession From the Seller
In many real estate transactions, it's possible to ask the seller to cover some or all of your closing costs. This is known as a seller concession. Concessions help buyers afford homes when they may not have enough cash on hand to close a loan. The specific items and amounts a seller can contribute to your closing costs vary by loan program.
3. Consider Using Lender Credits
Lender credits allow you to reduce your upfront costs by accepting a slightly higher interest rate. In exchange for paying a higher rate over the life of the loan, the lender covers some of your closing costs. This option is ideal if you're short on cash for closing but comfortable with a higher monthly mortgage payment. However, it's important to weigh the long-term impact of a higher rate before deciding.
4. Apply for Downpayment or Closing Cost Assistance
Various federal, state, and local programs offer grants, low-interest loans, or other forms of assistance to help with down payments and closing costs. These programs are often designed for first-time homebuyers or buyers in specific income brackets. Research what's available in your area—you could qualify for assistance that significantly reduces the cash you need at closing.
5. Use Gift Funds From Family or Friends
Gift funds are funds contributed by family members or, in some cases, friends to assist homebuyers in paying for their down payment and closing costs. Lenders typically allow a portion of your down payment and closing costs to come from gifts as long as you can document the source and confirm that the money is truly a gift—not a loan. Be sure to check with your lender about their requirements for gift funds.
6. Schedule Your Closing at the End of the Month
Yes, your closing date can affect how much cash you'll need at closing. A portion of your closing costs includes prepaid interest on your loan, which covers the period from the day your loan is funded until your first payment. By closing later in the month, you can reduce the number of days you owe prepaid interest, potentially lowering your upfront costs.
Reducing the cash needed to close on your mortgage loan is possible with the right strategies in place. However, the best practice is to start preparing ahead of time for all of the costs associated with purchasing and owning a home. Whether you are a first-time homebuyer or a seasoned homeowner looking to refinance or upgrade, the experts at Standard Mortgage have nearly 100 years of experience to help you make your dream of homeownership a reality. Contact one of our knowledgeable loan officers today.
