How to negotiate your mortgage closing costs

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You’ve found your dream home, settled on a price with the seller and secured a tentative commitment from the lender on a mortgage. Yet, as you approach the closing, you’re concerned about mounting expenses and those pesky closing costs, and looking for ways to make some of these costs go away — or, at least, to reduce the damage.

The answer is to negotiate. Charged by the lender and other vendors, closing costs typically total 2 percent to 4 percent of the home price. Fortunately, you can talk down these costs if you prepare properly.

7 strategies to reduce closing costs

1. Break down your loan estimate form

The lender is required to give you the loan estimate form within three days of completing a mortgage application, but there’s nothing keeping them from giving it to you sooner, so ask for it. This form includes an itemized list of costs, including your loan amount, interest rate and monthly payments. On page two it has a section called “Services you can shop for,” including:

  • Pest inspection
  • Survey
  • Fees for the title search and the settlement agent, and for the insurance binder

The vendors listed on the form could be your lender’s preferred vendors, but you’re not required to work with them, and your lender is also required to offer alternatives. You can shop around for lower-priced vendors for different services on your own; however, if your independently-selected vendor changes its pricing before closing, you’ll be on the hook for any increase. If you choose a lender-provided vendor instead, its pricing isn’t allowed to change by more than 10 percent from the original quote.

Additionally, if you’re buying a home, note that the seller or seller’s real estate agent might be the ones who chose the title and escrow provider. If you want to get new vendors in this case, you’ll need to negotiate the purchase agreement with the seller, not with your mortgage lender.

2. Don’t overlook lender fees

Many lenders charge loan costs, including those for origination and underwriting. You might not be able to get out of them, but you can try to get your lender to knock them down. It’s better to ask for a discount and get denied than to 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 different loan estimate forms from different lenders to compare. For an accurate basis of comparison, get these estimates on the same day and at the same time, since pricing changes so frequently.

3. Understand what the seller pays for

Who pays what closing costs? While the buyer pays some of the closing costs, the seller is typically obligated to pay others, such as the real estate agent commission. You can ask your seller to chip in for your portion, which would be reflected as “seller credits” on the loan estimate form. Keep in mind that this strategy might not work in a market like the one we’re in today, however, when sellers have much more leverage.

4. Think about a no-closing-cost option

If you don’t have the cash available to pay closing costs, you could consider a no-closing-cost option, if your lender offers it, usually in exchange for a higher interest rate. This saves you from having to have the money upfront at the closing, but ultimately costs you more in the long run because your lender is effectively absorbing these costs while you pay a higher rate.

5. Look for grants and other help

Different cities, counties and states have financial assistance programs for qualified homebuyers. You can explore your options with this guide to homebuyer programs by state. Many are for first-time homebuyers, and they help with down payment and closing costs. Others might require you to purchase a HUD-owned home, complete homebuyer education or be in a specific profession, like a firefighter or teacher, to qualify.

6. Try to close at the end of the month

When you close at the end of the month, you reduce your cash outlay at closing by reducing the number of days to which the per diem interest is applied before your first mortgage payment is due — usually on the first of each month.

To see how much you’d save, just multiply your loan amount (the total amount financed) by your interest rate — for instance, if your rate is 3 percent, multiply by .03 — to get your annual interest expense. Then, divide that figure by 360 to get your daily interest charge (lenders calculate interest using 360 days, not 365. Next, multiply that figure by the number of days left in the month plus the first day of the following month. If your loan is funded toward the end of the month, this figure would be much lower than closing mid-month.

7. Ask about discounts and rebates

Did you ever go to buy a car and find out about rebates you didn’t know existed? The same may be true with mortgage loans, as some lenders offer incentives to attract borrowers. These rebates can knock down various costs a few hundred dollars — easy money for the time it takes you to ask. You never know what you may find.

Bottom line

If you’re prepared for mortgage closing costs well before they hit, you won’t be surprised by the final figure. Don’t settle for what your lender quotes you, and don’t hesitate to shop around to compare costs from other lenders early on in the process. You can also try to negotiate some of these costs, potentially get the seller to help with others and look into state or local programs for more closing cost assistance.

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Written by
Dori Zinn
Contributing writer
Dori Zinn has been a personal finance journalist for more than a decade. Aside from her work for Bankrate, her bylines have appeared on CNET, Yahoo Finance, MSN Money, Wirecutter, Quartz, Inc. and more. She loves helping people learn about money, specializing in topics like investing, real estate, borrowing money and financial literacy.
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Reviewed by
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