Buying a home is an exciting process, but it can also be stressful, especially when it comes time to pay the closing costs. Closing costs refer to the fees charged to process and finalize a home purchase, such as appraisal fees, home inspection fees, title fees, document preparation fees, etc. These costs are typically between 2-5% of the home’s purchase price.
I Am Short On Closing Costs. What To Do?
When short on closing costs, consider these options: negotiate with the seller for a portion of the costs, shop around for lower fees, borrow from your 401(k), seek assistance from non-profit organizations, or as a last resort, charge it to your credit card.
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1. Negotiate with the Seller
Some sellers are willing to pay for a portion of the closing costs or offer closing cost credits to the buyer. This helps make the home more attractive to buyers. Discuss this early on in the negotiation process to see if the seller can cover a portion of your closing costs. Keep in mind if the seller pays your closing costs, it may come at the expense of negotiating the best purchase price.
2. Shop Around for Lower Fees
Don’t just go with the first lender, title company, or home inspector you find. Compare quotes from multiple companies to find the best rates. Things like title fees can vary significantly, so take the time to find the most affordable options. Using a first-time homebuyer lending program may also qualify you for discounted fees.
3. Borrow from Your 401(k)
You can take out a 401(k) loan to help cover your down payment and closing costs, if it’s an option under your employer’s benefit plan. This is a loan against your 401(k) that you pay back over time through payroll deductions. You do have to pay yourself back with interest, but it can be a good short-term option. Another benefit of this option is that the payments do not need to be underwritten in your debt-to-income (DTI) calculation like other types of loans.
4. Ask for Closing Cost Assistance
Non-profit organizations offer closing cost assistance programs in certain areas. They provide grants, typically $2,000-$5,000, that do not need to be repaid. Reach out to housing counselors in your state to see what closing cost help may be available.
5. Put Closing Costs on a Credit Card
This should really be a last resort, but if you have enough credit available, you can charge some closing costs (not all) to a credit card. Just be sure you have a plan to pay off the balance quickly, as interest rates are usually quite high.
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In Summary
The key is starting early when you need help with closing costs. Give yourself plenty of time to research options, ask lenders lots of questions, and determine the best solution for your situation.
Being short on cash doesn’t mean you have to delay homeownership if you are willing to get creative. With a little perseverance, you can figure out how to cover closing costs and get the keys to your new home.
