It’s inevitable. When you take out a mortgage, you have to pay closing costs. There are the rare occurrences when you will find a lender that will pay the costs for you, but then you’ll just pay it in the interest rate. Before you just accept the closing costs as they are given to you, you should learn what to expect.
Understand the Application Fee
Some lenders charge an application fee, but not all do. If you come across a lender that does, ask about the costs that are included in this fee. In other words, you want to make sure you aren’t being double charged for anything. For example, some lenders include the credit report fee and processing fee in the application fee. If it’s a bundled fee, you should know what’s included in it.
The application fee is also often negotiable. In other words, lenders may be willing to either cut it down or not charge it entirely. For example, if you’d rather pay a point on the mortgage and forgo little fees, like the application fee, the lender may be willing to do so. At tax time, the points you pay may be tax deductible, but the itemized fees will not be.
Know What you Can Negotiate
Aside from the application fee, you really can negotiate any closing costs. You just have to talk to the lender. They may not be able to do anything about third-party fees, such as appraiser or title fees, but other fees they may be able to negotiate.
As we stated above, some lenders even give a no closing cost loan. This means the lender covers the closing costs on your behalf. Rather than you paying closing costs, you then pay a higher interest rate. You’ll pay that higher rate for as long as you have the loan, so you should careful thought to this option.
If you don’t want the higher interest rate, you may be able to work with the lender on other closing costs. The underwriting fee, processing fee, and document fee are a few of the charges the lender may be willing to negotiate. If the lender is charging you points on your loan, those may also be negotiable.
You May Have to Pay the Seller
Sometimes the seller paid fees ahead, such as real estate taxes. If the seller moves and the taxes were already paid, they become your responsibility. This may mean that you’ll have to cover a few months of the real estate taxes by paying the seller back.
This could happen not only with real estate taxes, but also with homeowner’s association dues and any utilities that were paid in advance. Make sure to ask for proof of the costs that were paid and then have your attorney properly prorate the amounts to ensure that you pay the right or fair amount.
You May Have to Pay Real Estate Taxes Upfront
The timing of your closing helps the lender determine if you need to pay some or all of the real estate taxes up front. For example, if the real estate taxes will be due in two months, you won’t have an escrow account set up in time to get the taxes paid. The lender may then require the full amount of the real estate taxes at the closing to ensure that the taxes get paid on time.
Of course, if your county works in arrears, you won’t owe 100% of the amount due. The seller will have to carry a part of that financial burden. Make sure you know the tax amount due and how many months the seller is responsible for so that you are paying the right amount.
Make Sure the Closing Costs Match Your Loan Estimate
The lender is required by law to send you a Loan Estimate within 3 days of applying for the loan. On that Loan Estimate, you should see how much the closing costs will run you for the loan. While this is an estimate, it should be fairly close to what the lender charges you at the closing. When you receive your Closing Disclosure, determine if there are major differences in what you are being charged. If there is, you should inquire about the differences. It may be a mistake or something may have drastically changed. Either way, you have the right to know.
The most important thing is to be open with your lender. Ask as many questions as you have. Don’t just assume the closing costs are right or required. You have the right to know exactly what they are for and why you need to pay them. It never hurts to ask if you can lower the costs, either. You never know when a lender will be willing to do so.Click to See the Latest Mortgage Rates»