Closing costs are the required fees associated with completing the sale of a home. While there are some expenses that you can’t control and have to pay (such as property taxes and government fees) other lender fees can be negotiated or waived.
Closing costs are usually 3-5 percent of your total loan amount. If you borrow $100,000, closing costs can range between $3,000 to $5,000. These closing costs are usually broken down into a few categories:
Lender fees: this is related to the cost of getting a mortgage. An important document related to closing costs is the Good Faith Estimate. This estimate of fees must be provided by law to a borrower within three days of the lender’s acceptance of a borrower’s loan application.
This allows borrowers to make comparisons between lenders when looking at costs such as loan origination fees and loan lock fees. Make sure you have this document, as it is required under the Real Estate Settlement Procedures Act (RESPA).
This law was established to prevent predatory lending practices and to assist in helping borrower’s shop for closing services. After receiving the document, ask your agent what is included in each fee.
Ask your lender which charges are associated with the loan, as well as third party companies. Some fees are generated by these third parties so they don’t change much no matter where the loan originates from.
Document preparation fees are charged when the lender uses an outside company to prepare the closing papers.
No room for negotiation
Standard lender’s fees, that have less room for negotiation, include an appraisal fee, which covers the work done by a home appraiser who determines the value of your home.
Title insurance can’t be negotiated because it protects both the bank and homeowner against liens against the property.
Homeowners insurance also can’t be negotiated as it pays for the replacement or repairs of the home if it is destroyed or damaged. A bank will not have a mortgage out on a home with no insurance.
Time to negotiate!
Negotiable fees include the loan origination fee — this is what the borrower is charged for the privilege of having the loan.
Attorney fees can also be negotiated, as the homebuyer or seller may have their own representation.
Points are charged by some lenders as a way to manipulate interest rates. If you’re in good standing with your credit, you can tell them you don’t want to pay the points or shop around for a lender that doesn’t charge them.
When in doubt, ask questions.
Always question excessive fees and get clarification on fees that you’re clueless about.
Keep an eye out for junk fees, which come in the form of processing fees that will raise your bill over the Good Faith Estimate amount.
Ask about any costs that you feel are too high in price — always be an advocate for yourself and stay on your toes.
The closing costs involved with purchasing a home may seem overwhelming, but once you familiarize yourself with the different types of fees and inquire about costs you’re unsure of, you can build your confidence and negotiate fees to a lower price.