With interest rates continuing to be at all-time lows, now is a great time to buy a home or refinance your existing mortgage. When it comes to home buying or refinancing, closing costs can cost you (no pun intended). Many do not realize that some of the items listed as closing costs can be negotiated. By negotiating the items, you can save hundreds of dollars.
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If negotiating scares you, please don’t be afraid. First off, lenders expect you to negotiate. Inquiring about costs will not offend them. I have found that simply asking for more clarification on what so and so fee is gets me a good explanation of what the fee is and that opens the door for me to follow up with, “can that be any lower?” Luckily, you don’t have to ask about every line item on the page as I will point out many of the closing costs that you can and cannot negotiate in order to save money.
Third Party Fees
Any fee that goes to a third party, such as appraisal, title search, credit report and attorney fees are usually non-negotiable. I say usually because sometimes a lender will credit you for the appraisal or credit report. It never hurts to ask, but just be ready for a no response when asking for these fees to be waived. In most cases, you may be able to get a reduction in the fee as opposed to getting the fee completely waived.
One quick side note, if you recently purchased your home and are refinancing, you can sometimes bypass the title insurance by showing proof of the title insurance you received when you purchased your home. In my area, lenders will waive the title insurance if you bought your home less than 24 months ago. If you fall into a short time frame like this, be sure to ask if title insurance can be waived. This alone can save you thousands of dollars.
These include courier fees, fee for express mail, and administrative fees to name a few. These fees can be negotiated. When you see these fees, be ready to ask for a discount. Sometimes the lender will try to tell you that these fees are set, but if you keep pushing, they will balk and reduce or waive the fee.
Underwriting fees, settlement fees, and application fees are usually called junk or garbage fees and can also be negotiated. In some cases, these fees are for the same thing, just named differently to get more money from the borrower. Be ready to ask questions on what these fees are and to negotiate them. If the explanation of one fee sounds similar to another one, point it out and ask more questions. Make them explain each fee until you fully understand it.
You may be asking how you will know when the amount that you are being charged per fee is reasonable. The easiest way to do this is to get estimates from various lenders. You will then see that Lender A is charging you $200 for your credit report while Lender’s B and C are only charging you $50.
Another good way to know you are not getting ripped off is to calculate how much closing costs are in percentage terms. In most cases, closing costs average between 3-5% of the total price of the home. Anything more than that should raise a red flag.
One last tip is to simply contact a few lenders and tell them you want to refinance but are only willing to pay $X in closing costs. With many banks currently offering refinances for very low closing costs, more lenders are willing to reduce fees in order to get your business. Of course, you have to still qualify for the refinance.
Many people do not take the time to understand the fees that they are being charged. They are more focused on the fact that they are buying their dream home or are going to be saving a certain amount of money each month on the refinance. This allows the lender to charge higher fees than needed, which costs borrowers money. Make it a point to pay attention to the fees you are being charged and don’t be afraid to walk away from a deal because of high closing costs. There are many lenders out there, some great ones who would love to do business with you.
Have you been successful in negotiating closing costs? How much did you save by negotiating?