Successful real estate investors know that one of the best things you can do when investing in real estate is to learn how to save money. Of course, you have to spend money to make money in real estate investing, but why not spend less!
One aspect of real estate fees that investors overlook when thinking about how to save money is real estate closing costs.
Mortgage lenders won’t let you in on this secret, but you can negotiate and reduce real estate closing costs on your investment property (and even get lower interest rates). Real estate investors who are unaware of this little fact end up paying thousands in real estate closing costs when they don’t actually have to. Keep reading if you want to learn how to save money on real estate closing costs.
How to Save Money on Real Estate Closing Costs: Tip #1
Real estate investors shop around for the best investment property that is going to make the most money. So, why is it that when it comes to mortgage lenders, we don’t think we can do the same? This is the first step on how to save money on real estate closing costs. Talk to a few different mortgage lenders when looking to finance an investment property. This is easily done over the phone. A real estate investor provides financial information and possibly some information about the investment property. The mortgage lender will then provide a mortgage quote.
When doing this, look for not only lower real estate closing costs, but also lower interest rates on the mortgage. Try to get mortgage quotes from at least three different mortgage lenders, if not more.
Once you have basic information about mortgages for your investment property, visit your top choices for mortgage lenders. Apply for a mortgage, and three days after receiving a mortgage application, a mortgage lender is required by law to give a real estate investor a good faith estimate (loan estimate). This is what you will use for Tip #2 on how to save money on real estate closing costs.
How to Save Money on Real Estate Closing Costs: Tip #2
Next, a real estate investor should thoroughly compare the real estate closing costs from the different mortgage lenders. Luckily, this isn’t as tricky as it used to be for real estate investors before 2015. Mortgage lenders used to approach loan estimates differently when financing an investment property:
- The same real estate closing costs had different names.
- Similar real estate closing costs were placed under different categories.
- Third-party real estate closing costs were sometimes excluded or included, depending on the mortgage lender.
Now, loan estimates favor the process of real estate investors shopping around and learning how to save money on real estate closing costs because they are all uniform. All of the real estate closing costs are listed clearly, under the same categories and names, no matter the mortgage lender. You can take a look at the updated loan estimate forms as well as rules and regulations here.
Beginner real estate investors may still have trouble understanding all of the real estate closing costs. That’s okay. Just ask your mortgage lender to explain each and every one of the real estate closing costs and what they include.
How to Save Money on Real Estate Closing Costs: Tip #3
Now, let’s get into which real estate closing costs can be negotiated and reduced and which ones cannot. The loan estimate given for financing an investment property is three pages long. Page 1 gives the total amount a real estate investor pays for real estate closing costs. Page 2 is where all of the real estate closing costs are listed in detail. Page 2 is the most important page to focus on when learning how to save money on real estate closing costs.
Section A on Page 2 has the origination charges. The real estate closing costs here can be negotiated, reduced, and sometimes even completely waived. These include the application fee and the underwriting fee. Real estate closing costs such as these are sort of vague. Because of this, they can be easily negotiated. A lot of the time, the mortgage lender will even waive them if a real estate investor is persistent.
Another fee listed under this category of real estate closing costs is mortgage points. A real estate investor chooses mortgage points in order to lower interest rates. However, if you follow Tip #1 on how to save money on real estate closing costs, you should be choosing a mortgage lender who gives you lower interest rates. Mortgage points are enticing, but you end up paying for the discount on interest rates in the mortgage points themselves. So, if you successfully shop around for lower interest rates, skip these altogether.
Real estate closing costs listed under Section B are the ones a real estate investor can’t really negotiate or shop around for with individual companies. These real estate closing costs include appraisal fees, credit report fees, flood certification fees, and fees for tax services. While a real estate investor can’t reduce these real estate closing costs for a specific mortgage lender, the amounts vary from lender to lender. So, again, if you followed Tip #1 on how to save money on real estate closing costs, you can technically find lower real estate closing costs for Section B.
Section C is the most important one to understand when learning how to save money on real estate closing costs. A real estate investor has the option to shop around for these fees. The real estate closing costs under Section C are home inspection fees, survey fees, and title insurance fees.
The mortgage lender should provide you with a list of approved companies offering these services, and you can shop around for the best price. If you find a company offering a better price for real estate closing costs, but it’s not on the list, ask your mortgage lender if it meets the requirements.
Negotiating real estate closing costs somewhat depends on where you’re purchasing the investment property. In some states, like Texas, for example, title insurance is regulated and is the same, no matter the company.
How to Save Money on Real Estate Closing Costs: Tip #4
The final tip for how to save money on real estate closing costs is to ask mortgage lenders for discounts. This goes hand in hand with Tip #3 on negotiating real estate closing costs. The trick here, however, is to use the discounts mortgage lenders give you and make them compete for your business. If one mortgage lender gives you a great offer, let the other know about it and try to get an even better offer.
Don’t think for one minute that you can’t try to save money on real estate closing costs. Buying an investment property is already costly, don’t pay extra in real estate closing costs (or interest rates) when you don’t have to. Follow these tips and save on your next investment property.
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