Closing expenses are inevitable when purchasing a new house. According to a poll by ClosingCorp, the average closing cost for a single-family house rose 13.4% to $6,905 in 2021. That increases to $10,765 when taxes are included.
There are ways to reduce some of the upfront closing costs that homebuyers must pay, even if the days of no-closing-cost mortgages are long gone. To achieve that, borrowers must first be aware of the costs they would incur.
There are several sources and sizes of closing costs. The costs that the lender imposes are one thing, but homeowners also have to pay state and federal taxes. The biggest potential savings can be found in the lender fees, which vary from one bank or mortgage broker to another. The negotiation of items like city, county, and state transfer taxes, prepaid property taxes, and recording costs, on the other hand, is minimal to nonexistent.
Below are some of the most common expenses involved in closing a home:
Additionally, a borrower may buy points to reduce the interest rate during the mortgage loan. The number of closing expenses a buyer will be required to pay is determined by the financial institution, the mortgage-related fees it levies, the state in which the property is located, and the cost of the loan.
There are a lot of fees involved in closing, but don't worry. There are ways how to cut down those costs, and here are some:
There is a lot of money at stake with closing charges, making this a valid reason to look around for the lender with the lowest closing charges.
You can ask the loan provider to match any other lender's reduced closing cost offer. Other than getting estimates from several lenders, you can also get quotes for other services. You are free to compare prices for certain of the closing costs services, such as the title search, the survey fee, and the pest inspection fee. In other words, you don't have to choose the supplier your lender recommends; instead, you can look for a better deal elsewhere.
Long story short, shop around and compare before signing up for anything.
Don't just scan the Loan Estimate when you receive it. Discuss each item in detail with the lender, asking what each fee covers and why it costs what it does. This is an effective approach to spot inflated or pointless fees. Additionally, watch out for fees with names that are similar because the lender can be charging twice for the same service if they are. Processing and underwriting fees are two such examples. The lender might be transparent about the closing fees, but it's still important to carefully check your Loan Estimate.
You can begin negotiating once you have a clear understanding of the costs the lender is asking you to pay. If there are unknown charges involved, ask the lender to reduce them from the total price.
When it becomes available, request that your lender provide you with the Closing Disclosure form, which includes information about your final closing expenses. Compare the Closing Disclosure to the Loan Estimate and get an explanation from your lender if there are any differences.
When you negotiate closing costs, it makes sense to know which ones are negotiable and which fees are set in stone first.
For instance, loan origination fee. This is given to the loan officer or mortgage broker as a commission for introducing the client to the bank or lending organization. You can ask your lender if any components of the origination charge can be waived, such as the application or processing fees, to reduce it. Ask your lender if they will include application and processing fees in the loan origination fees; some lenders won't. Additionally, lenders are required to give you a list of closing costs beforehand so you may decide which are affordable.
Verifying that the home is both worth the asking price and belongs to the individual who claims ownership is a requirement for mortgage approval. The cost of that is passed on to the borrower because it requires some due diligence on the part of the mortgage provider. A title search, an appraisal, and a house inspection are costs associated with mortgages. Title insurance is also required by the borrower and is frequently obtained through the bank's preferred insurer.
These are just some of the things that you need to consider when negotiating closing costs. To find the best options for you, our team at Indy Legal can assist you.
Just click this link or give us a call at 317-214-6023 to get started.
Caroline Soriano