Understanding Mortgage Closing Costs

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, if you secure a $300,000 mortgage, your closing costs could be between $6,000 and $15,000. While these costs are a necessary part of the mortgage process, not all of them are set in stone. Fortunately, you can negotiate some of these costs to save money.

What Closing Costs Are Negotiable?

On the day you sign your mortgage loan papers, you’ll pay closing costs associated with the loan. These costs are typically paid upfront to the lender and involve several companies that work to process your loan, such as title companies, appraisers, credit reporting agencies, and real estate agents. While some closing costs are fixed, others are negotiable. Here’s a breakdown of negotiable and non-negotiable closing costs:

Negotiable Closing Costs

• Loan application fee: Many lenders will waive this fee, especially if you already have a business relationship with them.
• Origination and underwriting fee: These fees cover the examination of various documents submitted by a borrower.
• Rate lock fee: This fee allows you to lock in an attractive interest rate for a specified period.
• Title insurance: Protects against financial losses from issues not apparent when the title insurance policy was issued.
• Home insurance premium: Required by mortgage lenders, but you can shop around for the best rates.
• Agent commission: Typically paid by the seller, but the commission can sometimes be negotiated.

Non-negotiable Closing Costs

• Appraisal fee: A fixed fee charged by an appraiser to calculate the value of a home.
• Government fees: Fixed fees such as title transfer fees and document recording fees.
• Credit check fee: A fixed fee for checking a buyer’s credit score and history.
• Courier fees: Fixed fees for document delivery services.
• Property taxes: Set by government entities and non-negotiable.
• Real estate transfer taxes: Government-imposed taxes charged when property ownership changes.

How to Reduce Closing Costs

Aside from negotiating, there are several strategies you can use to reduce your closing costs:

Comparison Shop

When shopping for a mortgage lender, ask if they are willing to negotiate fees. Also, 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

By buying lender credits, you can pay a higher interest rate on your mortgage in exchange for a reduction or elimination of closing costs. Be cautious with this strategy, as it may 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).

Roll In the Closing Costs

Some lending programs allow you to roll closing costs and fees into your mortgage payments, reducing your upfront expenses. Keep in mind that this will increase your long-term interest costs.

Boost Your Credit

Improving your credit can give you more leverage with your mortgage closing costs and interest rate. Before shopping for a mortgage, address any weaknesses in your credit history to strengthen your position as a borrower.

Frequently Asked Questions

How Do You Calculate Closing Costs?

Closing costs are typically calculated as a percentage of the loan amount, ranging from 2% to 5%. Your lender will provide a detailed breakdown of these costs in the loan estimate.

What if You Can’t Afford Closing Costs?

If you can’t afford closing costs, consider seeking down payment assistance, negotiating with the seller, or rolling the costs into your mortgage.

Can You Put Closing Costs on a Credit Card?

While some closing costs can be paid with a credit card, it’s essential to check with your lender and consider the potential impact on your credit score and debt-to-income ratio.

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, review all costs with your real estate agent and mortgage lender, and exercise your negotiating powers whenever you can.

For expert mortgage services and to discuss your closing costs, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate the mortgage process and secure the best possible terms for your home loan.