Closing costs are something most home buyers don't consider when buying a home, but they are an expensive part of real estate purchases that cost you thousands of dollars. Using some basic strategies, you can minimize these costs and avoid hidden nightmares.

Minimizing closing costs in real estate purchases takes a carefule approach. It comes from early shopping, good planning, and a careful review of the costs demanded from lenders and closing specialists.

GET THE RIGHT FINANCING

Before you even start looking for a home, start looking for financing. And while looking at all the program options for interest rates, keep a critical eye on closing costs.

On the lender side, closing costs include things like mandatory inspections, appraisals, loan origination fees or "points" documentation fees and more. When talking to the loan officer, insist on getting a breakdown of their charges. Some fees are set, but other fees vary widely. SOme fees are negotiatable, so don't be afraid to ask.

One of the biggest costs can be origination fees, which can range from zero to an amount equaling several percent of the total loan amount. In fact, many lenders play little shell games, between the rates and the origination fees. As an example, one lender may offer a loan at 7% if you pay no fees, 6.75% if you pay 1.5% for an origination fee, or 6.5% for a 4% fee. Many home buyers just worry about the interest rate, trying to get their payments lower, but they end up spending more money on the house, because of the higher origination fee.

GET THE RIGHT ESCROW

You will find a long list of small charges when you go to escrow, including filing fees, title insurance, fees to prepare the deed, notary fees and more. If you are in a state that requires an attorney to do the closing, the costs are normally a bit higher than states that don't have this requirement. But even so, different attorneys charge at different rates so compare before you have a deal to close.

If your area typically has escrow companies do closings then it is easier to shop. Most such escrow companies will have a price list of costs for all their services, so it easier to determine who charges what.

GET THE RIGHT DATE

Finally, get the right date. There are a number of things that effect what is paid on a month basis, like insurance, property taxes, escrow accounts and even HOA fees. If you are buying a property it is almost always best to close early in the month - between the 5th-10th. This is because a larger credit for taxes, insurance and fees must be given to the buyer, and it can cut down on the amount you need to bring to the closing by $200-$300.

This is even greater savings if you are buying a rental as an investment. In that case, the seller needs to transfer a greater amount of money to cover the rents and deposits they had collected for the month. If you close later in the month, the difference could be thousands of dollars, depending on the circumstances.

All told, doing your homework and keeping a sharp eye out on closing costs can save you hundreds, if not thousands of dollars in transaction costs. Minimizing these costs gets you a better deal on your house, and a good start to your new stage in life.

Learn more about this author, Richard Evans.
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