Good News! There are strategies to lower your expenses at the close, and some of them can be substantial. In this article, I will show you strategies to lower your fees, and I will give you the pros and cons of using a no closing cost mortgage.

  • Shop around. Ask lenders for loan estimates before you apply and then shop lenders.
  • While the first page of the loan estimate has fixed costs, Section C on page 2 will contain services you can shop for.
  • Push back on fees. Some lenders will nickel and dime you. So, if you see several itemized fees ask questions and negotiate.
  • Sign loan papers at the end of the month. So, you don’t have per diem interest for the period between when your loan closes and the start of the new month.
  • Ask your bank about discounts and rebates. Because you will be surprised about what they will do for you.

These are strategies any savvy home buyer should use. Remember that banks are competing for your business, so, don’t let them trick you into believing that you can’t negotiate.1

Seller Paying Closing Costs

It is OK to ask the seller to pay your expenses but you need to know the market. If it’s a good deal you may not be able to negotiate too much.

  • In a buyer’s market (there is a large inventory of houses) you may be able to get the seller to pay some.
  • If the house is well priced there may be multiple offers. So, the seller will not need to negotiate.

While it is ok to ask, you should understand your ability to leverage concessions. Your real estate agent should be able to help you develop a strategy and negotiate terms.1

No Closing Cost Mortgage

A no closing cost mortgage doesn’t mean there are none, but it does mean that you won’t have to pay them upfront. There are two types that you must pay no matter what:

  • Loan fees include origination, application, underwriting, settlement, title, appraisal, and credit report fees. You also may have discount points.
  • Other costs include property taxes and homeowner’s insurance premium. You may also have prepaid mortgage interest and flood insurance.

There are two ways to achieve a no closing cost mortgage. You can add the costs to the principal of the loan, or you can take a higher interest rate from your lender. Either way, you will pay these fees over the life of your loan.2

Advantages

There are advantages to rolling expenses into your mortgage. The obvious advantage is that you don’t have to pay thousands of dollars out of pocket, but when is it a good idea to roll your expenses into your loan? Its a good idea if you:

  • Plan to be in your house less than 5 years
  • eed cash for renovations

If you are in either of these situations, then it makes sense to roll your fees into the mortgage.

Disadvantages

The main disadvantage is that you will pay more over the course of your loan. You should reconsider this strategy if you:

  • Expect to stay in the house for more than 5 years
  • Want a low monthly payment
  • Want to minimize the interest you will pay

The cost of not paying up front is that you will pay more over the life of your loan.

Negotiable Closing Costs

Some closing costs may be negotiable. But do your homework and be smart about what you ask for.

  • Learn what fees your bank includes on your loan estimate
  • Negotiate aggressively with your lender

Once you know what your bank includes you can compare with other companies. Remember that the mortgage business is very competitive. There are many lenders who want your business.3

Learn Different Costs

Today, it is easier than ever to learn the different costs you must pay at closing. When you apply for a loan the bank must provide you a loan estimate. This will list all the fees they expect you to pay at the close.

  • Some fees are fixed and can’t be negotiated, such as taxes
  • Other expenses come from the bank and are negotiable

Some banks will provide you a loan estimate before you apply, but others won’t give you this you until after you fill out your mortgage application. Either way, after you have the list of fees you can learn which are negotiable and begin to shop around.4

Negotiations Come from Lender

What does “negotiations come from the lender” mean? You can’t negotiate with the government, but the bank has many costs that they pass on to you. 

  • Some fees come from third parties, such as surveys and title insurance
  • Some fees are internal to the bank, such as application and origination fees

While the bank will steer you to use their preferred vendors there is no reason not to shop around for better prices. Likewise, a bank’s internal fees are very negotiable. By asking what they are and if they will bundle them you can get most banks to reduce, bundle or eliminate many lender fees.4

Can’t Afford Closing Costs

There are options available if you don’t have the cash to pay your closing costs, but you must speak with your lender ahead of time about your financial situation. Here are some ideas find relief:

  • Apply for a HUD-approved assistance grant
  • Find out if your lender has a no/low-cost closing option
  • Ask your employer if they have homebuyer assistance programs
  • Ask relatives or friends for a gift

Closing costs run thousands of dollars, and most homebuyers, especially first-time buyers, are shocked about how much they must pay at closing. If you read your loan estimate and understand your financial situation you can find a solution for paying those high fees.5

References

  1. Nerdwallet
  2. Bankrate
  3. HGTV
  4. Investopedia
  5. Free and Clear