Understanding and Reducing Mortgage Closing Costs

When you take out a mortgage, you’ll encounter various processing fees, taxes, and other expenses collectively known as closing costs. These costs typically range from 2% to 5% of the loan amount. For instance, if you secure a $300,000 mortgage, your closing costs could be between $6,000 and $15,000. While these expenses are significant, not all closing costs are set in stone. At O1ne Mortgage, we believe in helping you save money by negotiating some of these costs. Call us at 213-732-3074 for any mortgage service needs.

What Closing Costs Are Negotiable?

On the day you sign your mortgage loan papers, you’ll pay closing costs associated with the loan. These costs are typically paid upfront to the lender and involve several companies that work to process your loan, such as title companies, appraisers, credit reporting agencies, and real estate agents. While closing costs are an inescapable part of the mortgage process, negotiating them is possible. Here’s a rundown of some negotiable and non-negotiable closing costs.

Negotiable Closing Costs

Lenders may be willing to decrease or even erase some closing costs. Here are some costs you may be able to negotiate:

• Loan application fee: Lenders often charge a fee to review a buyer’s application for a mortgage. However, many lenders will waive this fee, especially if the buyer already has a business relationship with the lender.
• Origination and underwriting fee: These fees are charged by lenders to examine various documents submitted by a borrower as part of the loan process.
• Rate lock fee: When you find an attractive interest rate, you may pay a rate lock fee to preserve the rate for 30, 45, or 60 days.
• Title insurance: This protects against financial losses arising from issues, such as liens, that weren’t apparent when the title insurance policy was issued.
• Home insurance premium: Before taking possession of your new home, you must purchase a home insurance policy. While you must pay this premium, you can shop around to find insurance that meets your needs.
• Agent commission: Typically, a seller pays a commission to the real estate agent who listed the home. The seller’s agent and buyer’s agent generally split the commission.

Non-negotiable Closing Costs

Some closing costs can’t be negotiated because the fees are fixed. Here’s a look at some of these non-negotiable costs:

• Appraisal fee: Most buyers use an appraiser to calculate the value of a home. The lender compares this dollar amount to the loan amount to ensure a proper value is attached to the home. An appraiser charges a fixed fee for this work.
• Government fees: Certain government-imposed fees, such as title transfer fees and document recording fees, are fixed and can’t be negotiated.
• Credit check fee: As part of the mortgage process, a lender checks a buyer’s credit score and credit history to determine creditworthiness and set the interest rate. This fee is fixed.
• Courier fees: These fixed fees pay for picking up and delivering documents needed by a title company and real estate attorney.
• Property taxes: Government entities set property tax rates, which are non-negotiable.
• Real estate transfer taxes: These government-imposed taxes, also known as deed transfer taxes or documentary stamp taxes, are charged when the ownership of a property changes. The buyer or seller might pay these taxes, or they might share the burden.

How to Reduce Closing Costs

Aside from negotiating, you can use various tactics to reduce closing costs. Here are some cost-cutting suggestions:

Comparison Shop

When you’re shopping for a mortgage lender, ask whether they’re willing to negotiate fees. Additionally, compare fees charged by appraisers, inspectors, and other professionals involved in the mortgage process.

Check the Loan Estimate

At the start of the application process, a mortgage lender must provide a loan estimate. Reviewing this estimate enables you to compare closing costs and other fees, and may point in the direction of which costs can be negotiated.

Purchase Lender Credits

When you buy lender credits, you pay a higher interest rate on your mortgage in exchange for a reduction or elimination of the closing costs. Be careful with this strategy, though, as it might cause you to pay more over time.

Seek Seller Concessions

Some sellers may be willing to pitch in to cover closing costs if you ask. However, not all lending programs permit seller concessions.

Get Help With Closing Costs

If mortgage fees and closing costs strain your budget, you may be able to obtain down payment assistance from local, state, and federal agencies authorized by the U.S. Department of Housing and Urban Development (HUD). If you’re having trouble making the down payment, check out the list of down payment assistance programs provided by the Federal Housing Administration (FHA).

Roll In the Closing Costs

Not every lending program lets you roll closing costs and fees into your mortgage payments, but many do. If this is allowed, you can slash your upfront expenses. Keep in mind, though, that you’ll end up paying more interest over the long run—including interest on the closing costs.

Boost Your Credit

Improving your credit may give you more leverage with your mortgage closing costs and interest rate. Before shopping for a mortgage, look for weaknesses in your credit history that you can correct to put you in a better position as a borrower.

Frequently Asked Questions

How Do You Calculate Closing Costs?

Closing costs are typically calculated as a percentage of the loan amount, usually ranging from 2% to 5%. For example, on a $300,000 mortgage, closing costs could be between $6,000 and $15,000.

What if You Can’t Afford Closing Costs?

If you can’t afford closing costs, consider negotiating with the seller, seeking down payment assistance, or rolling the costs into your mortgage. You can also explore lender credits, which involve paying a higher interest rate in exchange for reduced closing costs.

Can You Put Closing Costs on a Credit Card?

While it’s possible to put some closing costs on a credit card, it’s generally not advisable due to the high-interest rates associated with credit cards. Instead, explore other options like negotiating with the seller or seeking down payment assistance.

The Bottom Line

You can save money by negotiating some mortgage closing costs, such as application and origination fees. However, certain closing costs are fixed and can’t be negotiated. To ensure your closing costs are as low as possible, go over all of the costs with your real estate agent and mortgage lender, and exercise your negotiating powers whenever you can. For expert guidance and assistance with your mortgage needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate the complexities of mortgage closing costs and secure the best deal possible.