How to Save on Mortgage Closing Costs: Tips and Strategies

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What Closing Costs Are Negotiable?

When you take out a mortgage, you’ll encounter various processing fees, taxes, and other expenses collectively known as closing costs. These costs typically range from 2% to 5% of the loan amount. For instance, a $300,000 mortgage could result in closing costs between $6,000 and $15,000. However, not all closing costs are fixed, and you may be able to negotiate some of them to save money.

Negotiable Closing Costs

On the day you sign your mortgage loan papers, you’ll pay closing costs associated with the loan. While some costs are unavoidable, others can be negotiated. Here are some of the negotiable closing costs:

• Loan application fee: Lenders often charge a fee to review a buyer’s application for a mortgage. However, many lenders will waive this fee, especially if you already have a business relationship with them.
• Origination and underwriting fee: These fees are charged by lenders to examine various documents submitted by a borrower as part of the loan process.
• Rate lock fee: This fee allows you to lock in an attractive interest rate for a specified period, such as 30, 45, or 60 days.
• Title insurance: This protects against financial losses arising from issues, such as liens, that weren’t apparent when the title insurance policy was issued.
• Home insurance premium: Before taking possession of your new home, you must purchase a home insurance policy. While this premium is required, you can shop around to find the best deal.
• Agent commission: Typically, the seller pays a commission to the real estate agent who listed the home, which is then split between the seller’s agent and the buyer’s agent.

Non-negotiable Closing Costs

Some closing costs are fixed and cannot be negotiated. These include:

• Appraisal fee: This fee is charged by an appraiser to calculate the value of a home, ensuring a proper value is attached to the home.
• Government fees: Certain government-imposed fees, such as title transfer fees and document recording fees, are fixed and non-negotiable.
• Credit check fee: This fee is charged by the lender to check a buyer’s credit score and history to determine creditworthiness and set the interest rate.
• Courier fees: These fees cover the cost of picking up and delivering documents needed by a title company and real estate attorney.
• Property taxes: Government entities set property tax rates, which are non-negotiable.
• Real estate transfer taxes: These taxes are charged when the ownership of a property changes and are either a flat amount or a percentage of the sale price.

How to Reduce Closing Costs

Aside from negotiating, you can use various tactics to reduce closing costs. Here are some cost-cutting suggestions:

Comparison Shop

When shopping for a mortgage lender, ask whether they’re willing to negotiate fees. Additionally, compare fees charged by appraisers, inspectors, and other professionals involved in the mortgage process.

Check the Loan Estimate

At the start of the application process, a mortgage lender must provide a loan estimate. Reviewing this estimate allows you to compare closing costs and other fees, helping you identify which costs can be negotiated.

Purchase Lender Credits

When you buy lender credits, you pay a higher interest rate on your mortgage in exchange for a reduction or elimination of the closing costs. Be cautious with this strategy, as it might result in higher long-term costs.

Seek Seller Concessions

Some sellers may be willing to cover closing costs if you ask. However, not all lending programs permit seller concessions.

Get Help With Closing Costs

If mortgage fees and closing costs strain your budget, you may be able to obtain down payment assistance from local, state, and federal agencies authorized by the U.S. Department of Housing and Urban Development (HUD). Check out the list of down payment assistance programs provided by the Federal Housing Administration (FHA).

Roll In the Closing Costs

Not every lending program allows you to roll closing costs and fees into your mortgage payments, but many do. This can reduce your upfront expenses, though you’ll end up paying more interest over time, including interest on the closing costs.

Boost Your Credit

Improving your credit may give you more leverage with your mortgage closing costs and interest rate. Before shopping for a mortgage, look for weaknesses in your credit history that you can correct to put yourself in a better position as a borrower.

Frequently Asked Questions

• How Do You Calculate Closing Costs?
• What if You Can’t Afford Closing Costs?
• Can You Put Closing Costs on a Credit Card?

The Bottom Line

You can save money by negotiating some mortgage closing costs, such as application and origination fees. However, certain closing costs are fixed and can’t be negotiated. To ensure your closing costs are as low as possible, go over all of the costs with your real estate agent and mortgage lender, and exercise your negotiating powers whenever you can.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate the mortgage process and save on closing costs.

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