Can I Negotiate Mortgage Closing Costs?

What Mortgage Closing Costs Are Negotiable?

Closing costs and mortgage fees are usually paid upfront to the lender on the day you finalize the purchase of your new home. These fees are typically charged by banks, title research and credit reporting agencies and real estate agents to originate and underwrite a mortgage. The fees are used to draft and review loan documents, update records, review your credit profile, broker your loan and more.

A highly motivated seller may be persuaded to pay some of your closing costs, especially in a sluggish market or when the house has been on the market for a long time. You also may be able to negotiate with your lender and other parties to get some fees reduced or waived entirely.

Origination Fees

Origination fees generally cover the costs of underwriting your loan, which can include processing your loan application, preparing the loan documents and reviewing your credit profile. The origination fee is disclosed by the lender at closing and may be paid upfront as a part of your closing costs or rolled into your loan to be paid over time.

Prior to closing, your lender will let you know how much they'll charge or if the fee will be charged at all. Origination fees can be as much as 1% of the home's purchase price. You can increase the possibility your lender will lower this fee or dismiss it altogether if your credit is good to excellent. However, in exchange for a lower origination fee, you may have to pay a higher interest rate or extend the term of your loan.

Loan Application Fees

A loan application fee is typically charged by your lender to process your mortgage loan application. The fee covers administrative costs and may include obtaining your credit report. If you are charged this fee, it is usually nonrefundable even if you're not approved for the loan. However, not all lenders charge an application fee and it may pay to shop around to find a lender that doesn't charge it. Or, you can negotiate the fee to be discounted or forgiven altogether.

Real Estate Commissions

Real estate commissions are a percentage of the home's final sales price and are paid to agents and brokers. Although rates vary, commissions can average 5% to 6% of the sales price, sometimes more. Usually, both the seller's agent and buyer's agent receive a commission, with each taking a portion of the negotiated fee.

No laws exist that dictate how much a real estate agent or broker can charge in commissions. An agent may be willing to negotiate a lower rate depending on your relationship, their required services, if they represent both buyer and seller in the transaction, and even sometimes if you just ask.

Mortgage Lock Fee

The mortgage lock fee is charged by lenders to "lock in" a mortgage interest rate for a specific time period or until your mortgage is funded. Typically, the longer the lock period, the larger the fee. Also, the lock rate can go up and down based on changes to your application, such as if the appraisal comes in lower or higher than when you applied, or your income or credit profile changes. Locked rates are typically only available for 30, 45 or 60 days. Although this fee can be negotiated, if you walk away, you may lose the money you paid.

What Mortgage Closing Costs Are Nonnegotiable?

Although you can haggle some closing costs and fees, many of the fees charged by the government cannot be negotiated. These may include an upfront FHA mortgage loan fee, VA funding fee and USDA mortgage insurance fees. Transfer and recording fees, property taxes, transfer fees and tax service fees, many of which are third-party fees, might also be nonnegotiable.

Recording Fees

State and local government recording fees cover the costs to legally record your mortgage, deed and other documents related to the purchase of your home. Generally, either the buyer or seller will pay recording fees.

Appraisal Fees

Before you get a mortgage, you'll likely need a home appraisal. An appraisal shows you the estimated value of the house you want to buy. Appraisal rates vary and often depend on the size of the home and the location. On average, you can expect to pay about $350 for a typical single family home appraisal. Appraisal fees are generally not negotiable.

Title Fees

When you buy a home, you will receive a document called a deed, which shows that the seller transferred the legal ownership—or title—of the home to you. The title service fee covers the costs of issuing a title insurance policy for the lender. This fee is rarely negotiable.

Credit Reporting Fees

When you apply for a mortgage loan, your lender will likely check your credit report to make sure you will qualify for a home loan. The credit reporting fee is usually not negotiable, as it covers the costs to attain a copy of your credit reports and scores.

How to Save on Mortgage Closing Fees

With some research and careful negotiating, your mortgage closing fees could end up being much less than you first thought. Besides negotiating, there are other ways you may be able to save.

• Comparison shop. Comparison shopping for a lender willing to negotiate fees is one way to save on your mortgage closing costs. Getting bids from attorneys, title insurance agents, surveyors and inspectors may lower fees and other costs if you can show a competitor's pricing is lower.

• Check your loan estimate. Your lender is required to give you a loan estimate at the beginning of your application process. This gives you the chance to compare closing costs and other fees from a variety of lenders, and may reveal items you can use to help you negotiate.

• Buy lender credits. With lender credits, you pay a higher interest rate on your mortgage loan and, in return, your lender reduces or eliminates your closing costs. Keep in mind that, although you'll pay less upfront, you will pay more over time because of the higher interest rate.

• Ask for seller concessions. Some sellers may offer to contribute to your closing costs if you ask. Not all sellers will pitch in, however, and not all loan programs or lenders allow seller's concessions.

• Seek closing cost assistance. If you can't afford mortgage fees and closing costs, you may find help from local, state and federal agencies authorized by the U.S. Department of Housing and Urban Development (HUD). The Federal Housing Administration also provides a listing of down payment grant and assistance programs by state.

• Roll in closing costs. Although not all loan programs let you roll closing costs and fees into your mortgage payment, many do. When you do, you'll pay less in upfront costs. But, you may pay more over the life of the loan as you'll pay interest on your closing costs as well.
• Shore up your credit. Having great credit may help boost your bargaining power on any closing costs, as well as your mortgage interest rate. Identify any weak spots in your credit history and work to improve your credit score prior to shopping for a mortgage for the best chances of success.

The Bottom Line

Buying a home can be pricey. Adding to the purchase price of your home are mortgage fees and closing costs, which can really add up—but they don't have to be a deal-breaker. Some fees are negotiable. Before going to the closing table, knowing which closing costs are negotiable and which aren't can help save you money.

Equally important is checking your credit report and credit score for free from Experian before shopping for a mortgage, and doing everything you can to improve that score before applying for a loan. Being armed with this information may be another way to save you money by getting the lowest interest rate possible.