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Coming up with the money to pay for closing costs can be a difficult obstacle for many borrowers.
If this is true for you, or if closing costs prevent you from buying your dream home, you need to know how to lower these costs altogether. In this article, we’ll look at what closing costs you can negotiate and how best to do so.
Can You Negotiate Closing Costs?
The simple answer: yes! As the borrower, you can negotiate certain items to bring down your closing costs.
Mortgage closing costs are the fees associated with using different services from the lender, real estate agents, title company, attorney, and more. While many of these fees can be lowered, some cannot.
What Closing Costs Are Negotiable?
The parties you work with through the closing process charge fees for their services and resources.
As with many businesses, you can attempt to negotiate these fees. The services you are paying for with your closing costs include preparing closing documents, conducting the title search, preparing the deed, the credit check, reviewing public records, and more.
>> More: Steps to Apply for a Mortgage
Negotiable Closing Costs:
- Homeowners Insurance: Your mortgage lender will require homeowners’ insurance to ensure that their financial investment is protected if something happens to the home. You can shop around, compare rates, and opt for the best deal.
- Title Insurance: There are two types oftitle insurance: one for the lender and the other for the homeowner. Both protect the respective party from title defects such as missed liens, ownership claims, or forged documentation. Although these policies are regulated at the state level, you may be able to obtain a discounted rate if your seller can provide a prior policy.
- Discount Points: These are upfront fees you pay in return for a lower interest rate. Typically, each point costs 1% of the principal loan amount. If you’re looking to save money on the front end, you can opt for a loan with a higher interest rate.
- Origination Fees: The mortgage origination fee from the lender covers the cost of reviewing the application and beginning the underwriting process with the borrower. It will typically be around 1% of the loan amount.
- Underwriting Fees: Between your initial loan application and the final clear to close, your loan will go through a process called underwriting. During this process, the lender will further review your financials and the property to determine final approval.
- Application Fees: This one-time fee is charged for processing the application.
- Rate Lock Fees: A rate lock agreement is between the lender and borrower on the loan’s interest rate. It usually lasts for a set period between 30 and 60 days.
- Real Estate Commissions: The sellers pay for the realtor commissions, which are typically around 6% of the sales price. On the buy-side, you may be responsible for paying your realtor’s broker fee or transaction fee. Discuss up front whether or not this can be negotiated.
Non-Negotiable Mortgage Closing Costs
- Government Fees: These can include recording fees to get documents registered in the county records and title transfer taxes. These are regulated by the government and cannot be adjusted.
- Property Taxes: If you are escrowing your taxes or a tax bill is due around the time of your closing, you may need to pay this upfront.
- Courier Fees: These fees are charged for any necessary transportation of documents via services like FedEx and UPS.
- Appraisal Fees: A home appraisal is done by a professional appraiser to evaluate the accurate market value of the home. This service will be required, and borrowers are not able to negotiate the cost.
- Credit Check Fees: Your lender will need to run a check on your credit to determine your reliability as a borrower. This is disclosed as a non-refundable service.
- Flood Certification Fees: Another third-party service, a flood certification, provides certification of the flood zone status through the life of the loan.
How to Negotiate Closing Costs
Now that you know what closing costs can and cannot be negotiated, it’s time to review how to go about doing so.
#1. Compare Lenders and Loan Estimates
Before trying your hand at negotiating, you must do your research. Reach out to multiple online mortgage lenders and ask for quotes on their fees, special programs, and any discounts.
You can also use online comparison tools to get a rough estimate of what these quotes would be. Once you’ve gathered your research, you can use the offers as leverage to get a better deal.
#2. Shop Around for Title and Settlement Services
Title companies are an essential part of the closing process. They are the ones that run title searches on the history of the property to ensure a clean transfer of title.
It is often up to the buyer to decide which title company to go with, so shop around and ask for quotes. You might consult your realtor about their experience with various title companies.
>> More: What Is a Title Contingency?
#3. Close at the End of the Month
By closing towards the end of the month, you’ll pay less money in prepaid interest on your mortgage loan.
It also gives you more time between the closing and your first mortgage payment.
#4. Work with the Seller
Seller concessions are credits they offer to pay for certain expenses. This could include title transfer fees, settlement fees, or any other items related to the closing.
#5. Roll Closing Costs into Mortgage
If you do not have the funds to pay upfront at closing, you can roll the expenses into your mortgage. This is called a ‘no-closing-cost mortgage’ and will result in a higher interest rate.
#6. Ask for Lender Rebates
You don’t know what you don’t know. Just by simply asking your lender about any rebate programs, you could end up saving yourself hundreds of dollars. Many lenders use these as incentives, so there is no harm in asking.
Is It Hard to Negotiate Mortgage Closing Costs?
Just like so many things in life, the worst they can tell you is no. Lenders, real estate agents, and title companies know that there are several of them to choose from, so if you show that you’ve done your search, they’re more likely to offer you their best deal.
Coming prepared will result in more leverage you can yield in your favor.
Do your homework and utilize all the tactics we’ve discussed, and you’ll have a good chance at securing lower closing costs.
Bottom Line: What Mortgage Closing Costs Are Negotiable?
As the borrower, you can be your own advocate and negotiate to lower your closing costs.
Negotiating the eligible fees and services may save you a significant amount when it comes time to close. As a new homeowner, this can make a world of difference.
In the same breath, it’s important not to rely on getting these fees lowered. Prepare for the worst and continue saving for the total cost. Any discounts you do secure will be a sweet surprise for your budget.
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