How To Negotiate Your Closing Costs

Certified Mortgage Advisor
NMLS 1701021
Published 
July 1, 2019

How to negotiate closing cost?

Now, let's talk about how to negotiate your closing costs. So when you're getting a home loan and looking at buying a house, you're going to have costs associated with purchasing that home that is outside of your down payment. So the main thing that we think about when we're purchasing a house is obviously the down payment. So what percentage of money are you putting into the equity of a property.

Closing cost is charged by different entities, not just the lender

But there are other costs associated with purchasing that home and some of them can and can't be negotiated. Oftentimes I think, we look at closing costs and think they're charged by the lender, but most of the time closing costs are not charged by their lender. They are just the fees charges. A bunch of different people in the deal I'm required to help you close on that house.

Ask for loan estimate

So let's walk through how to negotiate and look at your closing costs and see if those can come down at all. So number one, you're going to want to get your loan estimate.

What is a loan estimate?

A loan estimate is a legal document that every lender in the nation has to give you at least three days after you have a contract on a home and the loan estimates, going to detail everything about your loan, your rate, your payment, your closing costs, and an itemized list of all of the fees and costs in your loan.

Walkthrough

So you want to look at page two of that loan estimate to see what all those costs look like. So we'll first start is on the top left-hand side. You're going to see origination charges.

Origination charges

Origination charges are the fees charged by the lender. So most commonly in there, you're going to see something like an underwriting fee.

What is underwriting fee?

The underwriting fee pays the underwriter to close on a loan.

How to lower interest rate

You might also see some points paid to lower your interest rate. You might also see other things like a processing fee in there, but Section A are the charges from your lender. So if you're going to negotiate anything with the lender, look in Section A. Look at those costs. See if you have any questions about those costs and if they can change.

Waiving the underwriting fee

For example, a lot of the loans that we do have an underwriting fee. Now we can completely waive the underwriting fee and build it into the loan in a different way. It increases the rate a little bit but allows you to bring less cash out of pocket. So there's, there are some options that you have if costs are too high that you can finance those into the loan, then you also see other things.

What items are in a loan estimate?

Most of the items on the loan estimate are actually charged by third parties. So for instance, you might have an appraisal fee. That's normally about $500. You might have some other tax fees. You'll have fees from a title company.

Make time to compare fees from title companies

So what you can do with those is you can shop around different title companies and see what their fees are like. You don't have to go with just the title company that may be your realtor picks. You can shop around, find the title company that's going to have the lowest cost.

Recording fees

You'll also have other items like recording fees to the county. That is not something that you can negotiate. The county does not do a lot of negotiation.

Homeowner's insurance

You're also going to have things like the first year of homeowner's insurance paid up front, that's something that you'll be able to shop for on your own and find different rates and which one's going to suit you best. Then you might also run into an escrow account.

Escrow account

An escrow account is setting up your insurance and your taxes in a cushion account for you to make sure that taxes and insurance are always paid on time.

Ask questions and save money

You could talk with your lender about waiving that account. If that's something that you're eligible for. That way you could save some money on your closing costs. So it's good to keep in mind that your loan estimate is a bird's-eye view of all of the costs going into the deal. They're not all fees charged by the lender.

So make sure that you talk with your lender and you review every single item of that to make sure that you're comfortable with what these fees are, why they're being charged and who they're being to. That way you can eliminate any extraneous fees or any unneeded fees that really don't have to be there. So that is always good to keep in mind.

Something that I do with all of my clients is I do a video walkthrough of the loan estimate. So we go through every single line item on there. And I've explained why that fee is there, who it's being charged by. And ultimately what that fee is doing. Normally those fees are creating some sort of service that helps you close on that loan.

Can you negotiate your closing costs?

A little bit. There's not a lot of strong arm or sales tactics that you can use with a lender to try and get those closing costs to change because frankly, the lenders not charging most of the closing cost fees, there are only a couple of things that your lender is actually charging. Everything else is a third-party cost.

Talk to your lender

But if you're having a struggle swallowing with that final cash out of pocket number is because of some of those closing costs. Talk with your lender. There are options to figure out how you can reduce your total cash out of pocket.

For instance, we can do things like waiving the underwriting fee. You could also look at increasing seller concessions and you could look at getting a lender credit by increasing your rate. There's a couple of different creative options that you have to be able to lower that cash out of pocket if needed.

Talk with a loan officer
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