Mortgage Closing Costs: What You Need to Know
When purchasing a new home, it’s important to understand all of the costs involved in the process. One significant cost that many buyers overlook is mortgage closing costs. These fees can add up quickly and catch you off guard if you’re not prepared.
In this post, we’ll cover everything you need to know about mortgage closing costs, including what they are, how much they typically cost, and ways to reduce or negotiate them.
What Are Mortgage Closing Costs?
Mortgage closing costs refer to the fees and expenses associated with finalizing your home purchase. They cover a wide range of services provided by various parties involved in the transaction, such as lenders, title companies, appraisers, and attorneys.
Here are some common examples of mortgage closing costs:
– Loan origination fee: This fee covers the lender’s administrative costs for processing your loan application.
– Appraisal fee: This fee pays for an appraisal of the property’s value.
– Title search and insurance: These fees ensure that there are no liens or other issues with the property’s title.
– Home inspection fee: This expense covers a professional inspection of the property before purchase.
– Attorney fees: Depending on where you live, you may be required to hire an attorney for legal advice during the buying process.
– Prepaid interest and taxes: You may be required to prepay interest on your loan as well as any outstanding property taxes at closing.
How Much Do Mortgage Closing Costs Typically Cost?
The total amount of mortgage closing costs varies depending on several factors such as where you live and what type of loan product you choose. However, according to Bankrate.com’s 2020 survey data on average mortgage closing costs by state show that homebuyers paid between $2k-$5k in these charges across different states within America. The average homebuyer will pay around 2%-5% of the home’s purchase price in closing costs. For example, if you’re buying a $300,000 home, your closing costs could range from $6k to $15k.
It’s important to note that some lenders may offer “no-closing-cost” loans which means they will roll those fees into the loan amount itself. This can sound like an attractive option at first glance but keep in mind that doing this will increase your overall mortgage payments and interest over time.
How Can You Reduce or Negotiate Mortgage Closing Costs?
Fortunately, there are several ways to reduce or negotiate mortgage closing costs:
1. Shop Around for Lenders
Lenders can offer different rates and fees for their services. It’s essential to research multiple lenders before choosing one so you can compare their quotes on pricing with other competitors (comparing apples-to-apples) as well as other potential benefits such as customer service and online resources available.
2. Ask for Closing Cost Credits
Some sellers may be willing to give buyers a credit toward their closing costs as part of negotiations during the sales transaction process. This is more common when demand is high, or when competition is tight between multiple offers on a property.
3. Request a Loan Estimate
According to federal law under RESPA (Real Estate Settlement Procedures Act), borrowers have the right to receive a Loan Estimate form within three days of applying for a mortgage loan application from their lender(s). The estimate should provide all details about expected charges related to origination fees and settlement services being offered by each provider so that comparisons can be made among them before final decisions are made about who should service your loan product needs best based on cost-benefit analysis considerations too!
4. Consider Bundling Services with One Provider
Sometimes bundling together certain services such as title insurance, appraisal fee reductions, legal representation fees may save money instead of seeking out individual providers separately; it also simplifies coordination efforts since everything is being handled by the same party, assuming they are qualified and competent to perform those services.
5. Negotiate Fees with Service Providers
It’s worth asking providers if they can lower their fees or offer a discount, especially when you’ve chosen a specific provider for multiple services. They may be willing to do so if they’re getting more business from you.
Closing Thoughts
Mortgage closing costs can have a significant impact on your home buying expenses, but there are ways to reduce them. By shopping around for lenders and service providers, negotiating fees, and requesting loan estimates upfront – buyers can save thousands in closing costs that could have been otherwise avoidable or much higher than necessary at the time of purchase.
Be sure to ask questions about every fee itemized in your loan estimate form as well as your mortgage lender’s final settlement statement before signing papers on any property sale agreement documents!