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How to Negotiate Your Mortgage Closing Costs

Mortgage closing costs

How to Negotiate Your Mortgage Closing Costs

It doesn’t matter if you are purchasing a home or refinancing your existing mortgage; closing costs are a part of the process. While this is true, almost everything is negotiable (which is something you should keep in mind). Even though there may be some limitations, it is possible to negotiate your mortgage closing costs. Keep reading to learn more.

Compare Options First

One of the best tools to leverage your power when negotiating closing costs is the loan estimate form. This itemizes all the fees you will be charged.

When you first start shopping for a mortgage loan, you can receive custom information from potential lenders using loan estimate forms. Lenders must provide this form within three days of a home-refinance or loan application.

When you compare the loan estimate forms, you can gather the following information:

  • Details of all fees
  • Compare estimated costs from several lenders
  • Negotiate closing costs with the lender you choose

Remember, the average mortgage closing costs may vary from one lender to another. Therefore, it is so important to compare the options ahead of time.

Look at the Lender Fees

Some lenders charge loan costs, which include ones for underwriting and origination. Sometimes, you can’t eliminate these, but you can ask your lender to reduce them. It’s best to request a discount and be denied than never to ask.

Find Out if There Are Any Lender Rebates

If you are an existing customer with the lender providing the mortgage, they may offer rebates. This is a great way to save money, especially if you negotiate the closing costs for a refinance or other refinancing fees.

You can also contact your bank to find out if they offer discounts or rebates if you get the mortgage through them. Some banks provide loyalty discounts if you have other loans or accounts.

Know What the Seller Is Paying For

Who is covering the closing costs? Even though the buyer will pay some closing costs, the seller must pay the others, like the commission to the real estate agent. You can request that the seller help pays for your portion of the fees, which are then recorded as “seller credits.” Remember, the strategy may not always work, but it is worth considering.

Shop Around for Needed Service Providers

You will receive a list of mortgage closing costs with a loan estimate. These will include the ones that are non-negotiable and the ones you may be able to save money on. By shopping around for different service providers as you negotiate closing costs, you may be able to save some money.

Some of the most common providers that you may be able to shop around for and potentially save some money include:

  • Pest Inspection Services: You can expect to pay around $100 for this service, but if there is no evidence of pest presence or damage, it may not be necessary.
  • Title Fees: The average cost varies, but they usually exceed $2,000. It includes the fee for searching the title to ensure the seller has the right to sell the property, insurance policy fees to cover anything that may go wrong, and settlement fees for passing the title to the new owner.
  • Survey Fee: You can expect to pay just over $500 for this. The survey determines the precise boundaries of the property.

Consider a No-Closing-Cost Option

If you do not have the cash to cover closing costs, there is the option for no-closing costs. You must find out if it is available from your lender. However, you will be given a higher interest rate in exchange for no closing costs. This will help you avoid having to have the money upfront during the closing, but it will cost you more because the lender is absorbing the costs and giving you a higher interest rate.

Wait Until the End of the Month to Sign the Loan Papers

While this may sound strange, you can save money if you sign your loan papers close to the end of the month. You are charged a daily interest rate, which is referred to as the “per diem” for the time between when you close and the first loan payment period.

With this, the lender figures out the daily interest charge for your loan. That is then levied against you every day between when the loan closes and the start of the first pay period. If you arrange the loan closing closer to the first payment, you can reduce your per diem charge.

Consider Grants or Other Assistance

Each city, country, and state have unique financial assistance programs for qualified homebuyers. You can get to know the options with a search online. Some are available for first-time homebuyers and usually help with closing costs and down payments. With other options, you may have to buy a HUD-owned home, work in a certain industry, or enroll and complete a homebuyer education program.

Mortgage Points

Another way to reduce what you must pay is with mortgage points. These are equivalent to one percent of the total loan amount, and when they are paid upfront, they can reduce interest rates directly. With the money that you wind up saving, you can put more toward the points, which reduce your mortgage rate and result in more long-term savings when it comes to interest.

Now You Know Your Options for Reducing Mortgage Closing Costs

If you are searching for effective ways to reduce your mortgage closing costs, the above list should provide you with a few options. Remember, many of these tips depend on the lender you use. The best thing you can do is ask about the options mentioned here to see what is available to you. Usually, most people can find a few ways to reduce what they have to pay in closing costs.

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Peter Spino

Peter Spino, Jr., Esq., is an attorney that has a general law practice but specializes in residential and commercial real estate. His business and real estate experience make him uniquely qualified to represent you in any legal matter you may be faced with. Over the past five years Peter Spino, Jr., Esq., has assisted over a thousand homeowners with loan modifications, foreclosure defense, short sales, deeds in lieu, settlement of second mortgages and bankruptcy.

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