Can You Negotiate Closing Costs As a Home Buyer?
Kevin Shirley, Associate Broker (DC), e-PRO, GRI, ASP
As a homebuyer, you expect to pay a significant amount on the closing fees for your new home. The costs may be somewhat negotiable, depending on where you live — and the current market conditions in your area.
Closing costs on a home can be high. In many cases, buyers don’t realize exactly how much they will be paying until the process is underway. If there is a serious problem, the costs may rise and far exceed what you had initially anticipated paying. Getting the right advice can help you negotiate closing costs for your home to get a better deal.
Closing costs are the charges needed to process and close your home sale. For instance, when you apply for a home loan, the lender must disclose exactly what is included in the breakdown of the closing costs. These closing costs may change based on the type of mortgage that you have.
In addition, other factors — such as the rates for insurance, property taxes, and lender fees — can also impact the final closing costs that you will pay. If you want to lower your closing costs, you need to shop around for the best deals on insurance. You may also be eligible for specific discounts if you plan to build a new home instead of buying an existing one.
Discuss the closing costs with your lender to have a thorough understanding of the expenses that you will pay before the sales agreement is finalized. While you might not have an exact breakdown of the final costs until the day of the closing ceremony, you will still have a general idea of what you can expect to pay.
Attorney’s Fees
As a part of the closing costs, the lender may opt to include attorney’s fees. Attorney’s fees are typically charged if the lender gets a third-party attorney involved in the closing process. In many cases, it is possible to negotiate these fees, and the lender may also opt not to include them at all in the final costs.
Mortgage Insurance
Depending on the lender, you may be required to pay the year’s costs for mortgage insurance. Other lenders may want even more and calculate a figure that translates to a more significant portion of the total mortgage loan. Check with your lender to determine precisely what is required regarding the amount of mortgage premium you will have to pay upfront.
Homeowner’s Insurance
Depending on the area you live in, negotiation options can be limited, but you can always save on the homeowner’s insurance. Homeowner’s insurance is essential because you will not be able to close on a home mortgage without it. By shopping around with several brokers to obtain quotes for homeowner’s insurance, you can get the coverage you need for a price that meets your budget.
Title Insurance
Title insurance is another important cost that you will have to cover. While it is not mandatory, it can save you a lot of money if something goes wrong. Title insurance is designed to protect you against the legal costs required to resolve problems regarding the home title. It can also protect you against title fraud, existing liens against the property’s title, undischarged mortgages, and other issues that have resulted due to the failures of the property’s previous owners to resolve such issues.
For instance, without title insurance, a buyer must either deal directly with a seller (or hire attorneys at his own expense) to try to track down a seller’s spouse and the sales proceeds. This can be an arduous and expensive undertaking. Protracted negotiations and/or litigation likely could ensue.
Saving on Closing Costs for New Construction
If you are building a new home instead of buying an existing one, you may be eligible for credits that can allow you to reduce the final closing costs on the home. To be sure you are getting the best value on closing costs, check with a local title company, and ask if it will run a comparison for you between your builder’s closing cost estimate and the title company’s breakdown of fees. Many companies will do this for you at no charge, and it generally takes only minutes. Gadow also mentions that if the builder’s estimates for the title and escrow fees offer a better deal, you should instead select it.
Property Tax
You may also be required to put a certain amount of funds into an escrow account to cover the property taxes associated with buying the home. The lender will then make the payments on your behalf. This upfront deposit guarantees that there is enough money available to make sure that the bills are covered.
These are just some of the fees that may be included in the final breakdown of your closing costs. You may also be required to pay additional fees based on the local government’s regulations in your area. You can discuss the fees with your lender to determine what expenses are most likely to be included.
Closing cost negotiations should always be done before you sign the sales agreement. You should always make sure that you look for better deals to lower your closing costs because there is still room for negotiation. When you go to the closing ceremony, you should make sure that you have the payment ready to submit. The closing ceremony may take place at a title company, bank, or attorney’s office. Be aware that the final closing costs may differ from the estimate given because of the negotiation process.
