When you’re buying a new house, the actual house itself isn’t the only thing you’re paying for—there are a number of fees that are rolled into the final price in order to make it officially yours.
Although many experienced homebuyers are aware of the extra costs, there are plenty of first-timers who are hit with sticker shock upon receiving their good-faith estimate—and rightfully so. A five percent down payment on a $300,000 home, for example, is $15,000, but add in closing costs, and it could cost you triple.
However, while many of these closing costs must be paid, there are some that can be negotiated down, waived, or avoided altogether. According to the Federal Reserve, closing fees alone cost an average of three-to-six percent of the home’s sale price, but there’s no reason why you should pay it all if you don’t have to.
The Right Time to Negotiate
While you can address your concerns at any time, you should do so when you receive your good-faith estimates of closing costs from both your real estate agent and your lender. With an outline of the fees you’re expected to pay when buying or refinancing a home, you can easily review each item with the appropriate party and make your own determination as to whether or not the fee is reasonable or even necessary. It’s much easier to digest this information early in the process than to wait and try to get an accurate explanation while you’re being bombarded with various agreements and applications to sign.
Before you confront your lender, it’s important to have some background knowledge about which items are non-negotiable, such as government and some third-party fees (fees the lender pays to another party). These include transfer taxes and the cost of running a credit check, flood certification, appraisal, and inspection.
Although there’s no avoiding many of these costs, you should never be asked to pay more than what the third-party charges to perform the service.
To determine the fees charged by your lender, ask him/her to prepare a Loan Estimate (LE). The LE is required by law and must disclose all lender fees and third-party fees as well. It also indicates the services that you're permitted to shop around for, such as title insurance. Depending on how these services are completed, fees may be waived or reduced. Generally, fees that are intended to cover the cost of your lender doing business can be negotiated. These might include fees charged for processing your application (loan origination fee), commitment fees, and underwriting fees.
Title Insurance and Settlement Services & Homeowner’s Insurance Fees
If you’re going to have a mortgage your lender will require that you have a lender’s title insurance policy as well as homeowner’s insurance. Your real estate agent or lender may offer these services through their in-house providers, but you are under no obligation to use them.
To ensure you only pay what’s required, the CFPB (Consumer Financial Protection Bureau) suggests that you shop around for your own title insurance and settlement services company. You also have the option to shop around for homeowner’s insurance and will often times get a discounted rate if you place your auto and homeowner’s insurance with the same carrier.
Broker Service/Conveyancing Fee/Flat Fee Commission
These fees have become very popular over the years and can range anywhere from $395to $795. Basically, this is a fee sometimes charged by a real estate agent or broker (in addition to their sales commission) to process your transaction. This fee is negotiable as well. Often times your title insurance/settlement services company will provide these services for no additional charge.
Discount Point Fees
If you choose to pre-pay interest to lower the interest rate on your home loan, you may be charged with discount points or a higher origination fee to reduce the lifetime cost of your loan. However, you have the opportunity to negotiate them as well.
If these tips and tricks seem overwhelming, remember it’s your right to question fees you don’t understand. A helpful way to avoid getting duped during this process is to shop for these services early on in the process.
If spending a little time comparing the fees and services offered by multiple service providers can potentially save thousands of dollars, why not?
posted by Frank Dowd
Real Estate Insider, Consumer Advocate, Blog Contributor
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