Being able to afford a house is one thing, but many homebuyers leave out one expensive ticket item: closing costs.
These fees charged by the lender and can cost you between 2 percent and 4 percent of the home price. If you’re not paying attention, that could mean tens of thousands of dollars, depending on the cost of your future home.
Haggling the home price is one thing, but can you lower closing costs? There are a few steps to take to negotiate your closing costs.
1. Break down your Loan Estimate form
You’re required to get this form from your lender within 3 days of completing a mortgage application. You might be able to get one sooner, so ask your lender before you’ve applied for a mortgage to see if they’ll give you one.
This form gives you an itemized list of what everything will cost. Here’s an example from the Consumer Financial Protection Bureau. It includes your loan amount, interest rate, and monthly payments. On page 2 it has a section called “services you can shop for,” like:
- Pest inspection
- Title fees, like title search, insurance binder, and settlement agent
These are services you can find on your own or use what the lender provides. If you shop around, you might be able to find something cheaper.
2. Don’t leave out lender fees
Lenders charge loan costs, like origination and underwriting fees. You might not be able to get out of them but talk to your lender about lowering the fees. There’s no harm in asking. It’s better to ask for a discount and get denied than not ask at all.
It’s also a good idea to compare offers from other lenders. If you can get an estimate before you submit your application, try to get a few different Loan Estimate forms from different lenders to compare.
3. Understand what the seller pays for
Who pays closing costs? While you, the buyer, will pay a chunk of the closing costs, the seller handles some of it, too.
Sellers will usually pay the real estate agent commissions, and depending on the market, might contribute to the cost of closing. You can ask your seller to chip in, which count as “seller credits” on your Loan Estimate form.
4. Get new vendors
Once you get your Loan Estimate, jump into finding new vendors for available services. This should happen as soon as you can get it done, as these companies need time to prepare the necessary paperwork for your home.
Your lender might be able to provide a list of vendors that are less expensive than the one they have on the Loan Estimate form, but you can do you own research. Finding cheaper vendors could save you hundreds of dollars in closing costs.
5. Fold the cost into your mortgage
If you don’t have the cash on hand to afford closing costs, ask your lender about alternative options. They might offer a way to roll the closing costs into the mortgage price.
This might save you money at closing, but it will ultimately cost you more in the long run. You’re adding to your monthly payment and paying interest on your closing costs. If you had paid the cost up front, you wouldn’t be paying interest on it.
Otherwise, this might be a viable solution if you’re short on funds at closing.
6. Look for grants and other help
Different cities, counties, and states offer financial help to homebuyers who need it. Some places have lists of grants in your area but the best place to start is around town. Contacting your municipality will have the most up-to-date grants and assistance programs available. Many are for first-time homebuyers and help with downpayment and closing costs.
Closing costs don’t have to hurt you
If you’re prepared for mortgage closing costs before they hit, you won’t be surprised by the final figure. You can negotiate closing costs in some areas, and get the seller to help in other areas. Don’t settle for what your lender gives you and don’t hesitate to shop around to compare costs from other lenders.