What if I Can’t Afford Closing Costs? 5 Practical Solutions

A house is an end goal for many, a point where they can consider themselves well-settled and relax a bit before getting back to the new journey. With such a huge dream becoming the reality, we tend to go beyond our means to make it possible. That’s what happens while purchasing a house, you hear the final price, any additional cost, you extend your budget to the limit, and then you hear there is another additional fee before the purchase is complete: The closing cost. 

What are you supposed to do in this situation? I’m sure many first time buyers have faced this situation, or you might be facing one right now, that’s why you are looking for ways to handle it. Everything else is paid for, you are just one step away from the dream, and you hear about the closing cost. Your budget is beyond you imagined and now the thought creeps in, “What if I Can’t Afford Closing Costs?” Don’t worry, we got you covered, we are here with some solutions that can help you get out of this sticky situation without too much financial strain. 

But before we jump into the ways you can handle the situation, let’s understand what the closing cost is and why you are paying for it. 

What are Closing Costs? 

The closing cost is the final payment to be made before the purchase is finalised. The purchase includes payments for the lender’s processing fee, ownership title, home appraisal and inspection fee, and taxes and insurance charges. Closing costs are different from all the previous payments made like the down payment, the monthly mortgage, or the fees you paid to the broker, and spurs before the deal is finalized, surprising a lot of new buyers. 

Closing costs typically range between 2%-5% of the complete home’s purchase price. It means, if you are buying a house worth $400,000, the closing cost can between $8,000 – $20,000, So the total amount you pay on the house, excluding the mortgage and down payment can go upto $420,000. So, next time you are looking to buy a house, consider closing costs in your budget so you are not caught lacking. 

What if I Can’t Afford Closing Costs? Here Are The Solutions!

Stuck in a similar situation where the closing cost has spurred as a surprise and now looking for ways to handle it, here are the best ways you can deal with the situations and finalize your purchase: 

1. Negotiate With The Seller

Your most effective and direct bet is to talk to the owner for a discount, more lenient terms, a pay later term or to help you with the sudden cost. Even while negotiating with the owner, it would be better if you understand the current market condition. Is the market slow or can the seller easily sell the house without too much effort? Understanding your position, it helps you negotiate more effectively by understanding your strong points. 

This process of negotiating with the seller is known as concession. And in most cases, the seller usually understands the situation and agrees to negotiate. However, make sure you negotiate face-to-face for more flexible and better terms, trying to negotiate online could lead to more complications. 

2. Look into Lender Credits

You can contact your lender to talk about including the closing cost into the total mortgage. Including the closing cost into the entire mortgage may open your contract up to a higher interest charge. As the deal won’t be finalized before you pay the closing cost, you have enough time to contact and discuss the details of this inclusion. 

3. Look Into Assistance Programs 

There are many government and nonprofit organizational schemes specifically available for the sole purpose of helping people deal with similar situations where the buyers get stuck at the last payment of closing costs. These are low interest loans that help you cover the extra unexpected cost that one couldn’t include in their mortgage. 

4. Personal Help or Savings 

With the amount being a bit smaller, you can ask your close friends, or relatives for the extra amount that you need. As the amount is more affordable, the chances are some of them can have the luxury to help you. But asking someone to loan you the amount can be a long shot, so you should also consider tapping into your savings that you may have saved for some other plans in the future, only if you can recover the savings in time. 

5. Employer or Union Assistance

If your company provides you with housing benefits, you can check in with the Human Resources department about whether they can help you with this situation. 

Before you opt for any of the loan options, even for employer assistance, you should check in with your personal contacts. If that’s not an option, then compare the available options for you and then decide based on what seems suitable for you. 

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Frequently Asked Questions (FAQs)

Final Statement

If you are stuck in a similar situation, where the closing costs have spurred like a surprise, don’t panic, take your time, and explore your options. The solutions we mentioned, such as negotiating with the seller directly, opting for government or non profit organizational schemes for payment assistance, looking into lender credit, exploring your job’s housing assistance coverage, or by simply asking someone for help, can counter your problem without stressing too much. 

Each option offers you a different approach on how the closing cost will be handled, so take your time to explore them each, think about which one is available, and which one from those available options you can benefit the most.