We're a little tight on cash. How can we shift some settlement costs to reduce out of pocket expenses?
Some buyers reduce the cash needed at settlement by scheduling closing at the end of the month. But there are several other ways to save on closing costs that may work better in the long run.
- Skip late-month settlement
Since interest on the loan is paid to the end of the month at settlement, the interest payment gets lower as you get closer to the end of the month. But another approach is to wait a few days until the beginning of the next month. That way, you'll need to pay more up front at settlement, but you'll gain a whole month's delay before the first full mortgage payment is due, because mortgage interest is paid in arrears, after the month has passed.
- Reduce out-of-pocket cash
Another way to reduce the cash needed at settlement takes some advance planning. By negotiating with the seller, the buyer may be able to pay more for the home and finance it, while the seller puts an equal amount toward out-of-pocket settlement costs.
- Finance closing costs
A third option is to find a lender who will finance closing costs by wrapping them into the mortgage. This method may, however, cost more over the long run, as lenders often will then charge a higher interest rate for a "no closing costs" loan.