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As buyers in Palatine, Arlington Heights, Barrington, Inverness and Schaumburg are always looking to reduce their closing costs I have a list of options that allow buyers and homeowners to reduce the amount of cash required at closing.
1. Ask for a slightly higher interest rate. This is similar to asking for a No-Cost Refinance, where you agree to take a higher interest rate for a monetary concession to offset closing costs. This concession can range from a few hundred dollars to a few thousand dollars.
2. Ask for a closing cost credit. If you are buying a home the seller may be willing to make a closing cost concession to close the transaction. Closing costs generally amount to about 2.5% of the sales price and lenders will allow for up to a 6% seller credit. This amount varies by loan program, occupancy and amount of down payment. This seller credit means that the seller will receive a smaller 'net proceeds,' which means money is deducted from their equity payout at the closing.
3. Make a higher offer. This is generally used in conjunction with number two above. A buyer can ask for a price that absorbs the seller closing cost credit so the seller's net proceeds are not affected. Both sides win. One caveat is that the home will have to appraise at the higher price for the loan financing. The benefit is that this approach allows the buyer to finance the fees over 360 months on a 30 year note by virtue of taking larger loan amount used to purchase larger priced home. Be sure to comparatively look at your individual advantages and disadvantages of financing the loan costs. Fees are assessed every time the property is financed. Expect closing costs on purchase transactions around 2.5% of sales price and on refinance transactions to be 1% of the loan amount.