Negotiating your closing costs when buying a home could save you money. But how do you know which closing costs are negotiable and which aren’t? Average closing costs often range from 2% to 5% of the total loan amount, making up a substantial portion of your overall mortgage expense. Expetitle has the breakdown of each closing cost and how to get the lowest fees for each. Let’s get started.
Closing costs are the fees and other costs that lenders and third-parties charge you for originating your mortgage and buying your home. Banks, real estate agents, lawyers, title research companies, credit reporting agencies and the government require various services during the closing process, including drafting and reviewing loan documents, checking and updating official records, reviewing your credit profile and brokering your loan and home sale.
Not every cost is negotiable. Any fee charged by the government (such as title transfer fees or recording fees) is set in stone. Likewise, any service from a third-party provider will be difficult to negotiate with your lender. That means you won’t have much room to negotiate your credit report fee, flood determination fee or appraisal costs. Lenders outline “services you cannot shop for” on page two of the loan estimate form.
|Fees you can negotiate||Fees you can’t negotiate|
|Homeowners insurance||Stamp and tax service fees|
|Title insurance||Recording fees|
|Discount points (lender credits)||Transfer taxes|
|Origination/underwriting fees||Property taxes|
|Application fees||Appraisal fees|
|Rate lock fees||Tax service fees|
|Real estate commissions||Flood certification fees|
You have plenty of opportunities to negotiate for a better mortgage. Start by negotiating for lower interest rates, discount points and lower origination fees. Negotiating these fees may dramatically reduce the total cost of your loan.
Normally, when you take out a mortgage, you have to pay for six months to a year’s worth of homeowners insurance. Be sure to shop for the best rate on insurance, and consider bundling homeowners and car insurance for the best rates.
The average cost of homeowners insurance nationwide is $1,083 as of the date of this writing. This is one of the few fees where the buyer has complete control over the selection process. It’s therefore a good idea to shop home insurance quotes across a number of companies to ensure you’re getting the cheapest rates possible.
When you buy a house, you’ll need a “clean” title. That means assurance that nobody else has legal claim against the house when you buy it. When you buy a house, you’ll typically have to pay someone to do title research, as well as purchasing lender’s title insurance.
Lender’s title insurance will protect the lender if somebody sues and argues they have a right to the house. While most lenders will provide their own title company for the transaction, you can also request that the lender use a title company of your choosing (*hint hint* Expetitle) for a cheaper–– better–– rate. Keep in mind that the lender has no obligation to accept your suggestion so it’s possible that they may turn you down.
Points, or discount points, are an upfront fee that you pay to lower your interest rate on a loan. A typical “point” costs 1% of the amount you borrow — that means a point for a $250,000 loan would be $2,500. By buying points you’ll pay a higher fee upfront in exchange for a lower interest rate (and lower monthly payments), the exact interest rate reduction per point isn’t set in stone and will vary by lender.
Conversely, you can also apply for lender credits, which are the exact opposite of discount points; lender credits reduce the size of your upfront closing costs in exchange for a higher interest rate on your mortgage. You can use the lender’s discount points and credits to adjust your mortgage terms to your liking, but keep in mind that you will be trading upfront costs for interest rate concessions in most cases.
Loan origination fees are associated with the underwriting process, although different lenders may call these fees by different names. For example, an application fee and an underwriting fee might constitute an origination fee for one lender, while another lender might call it an origination fee and a rate-lock fee.
Whatever it’s called, a typical loan origination fee generally costs around 1% of the requested loan amount; however, this cost can vary by lender. You can find the loan origination fee at the top left corner of the second page of your written loan estimate. A loan estimate is a document that a lender gives to you after you request a loan from that lender. It’s a good idea to request multiple loan estimates from different lenders to ensure you’re getting the best deal around.
Negotiating with lenders and sellers takes time. Consider taking a vacation day to spend extra time on negotiations. If you can’t take time off from work to negotiate, be sure to give yourself extra leeway between your offer and your targeted closing date. The extra long window of time will ensure that you have ample time to negotiate with lenders before you finalize the loan details.