2 Ways to Eliminate Closing Costs

2 Ways to Eliminate Closing Costs

Closing costs get a bad rap sometimes, as if they’re not welcome to the real estate party. Buying investment property is no small decision and requires upfront cash of 20 percent down or more and closing costs only add to the funds needed to close on an investment property. But there are important third party services required before a loan can close, highly needed third party services.

For example, title insurance protects you and the lender from previous claims on the property from others, property inspections make sure your home is free from defects and an appraisal helps support the sales price of the investment. All of those companies, and more, need to be paid for their professional services. But there are two ways to save or eliminate closing costs altogether.

Seller Paid: The first way is to have the seller pay for your closing costs. Say that a property is listed at $100,000. Your offer would read something to the effect of “We’ll pay $100,000 if you’ll pay my closing costs.” The seller can do one of three things, say “no,” say “yes” or say “yes, but not all of your costs.” But you do have to ask.

If the seller refuses to pay for your costs, you have the opportunity to ask again once the property inspection has been completed. Even though the seller says “no” the first time, you’ll get another chance.

Lender Paid: The lender can pay for some or all of your closing costs by making a slight adjustment with your interest rate. Every loan program has a variety of interest rate choices based upon how many discount points you might pay. A discount point, or “point” is expressed as a percentage of the loan amount. One point on a $200,000 loan is $2,000 for instance.

On a 30 year mortgage, you might be quoted 4.50 percent with no points but if you pay one point, the rate might drop by one-quarter of one percent to 4.25. Conversely, the lender can increase your rate from 4.50 to 4.75 and provide you with a credit of $2,000. Yes, your rate is slightly higher, but you’re saving $2,000 as a result.