Mortgage closing costs are expensive, but you can negotiate with your lender

  • Mortgage closing costs usually come to thousands of dollars, but you can negotiate with your lender.
  • Negotiate lender fees, then search for companies that will charge less for homeowners insurance or an appraisal.
  • Ask the lender about any grants you can put toward closing costs or a down payment.
  • See Insider’s picks for the best mortgage lenders »

When you buy a home or refinance, you’ll pay closing costs. These cover everything from an application fee, to an appraisal fee, to legal fees.

According to the Closingcorp, the average mortgage closing costs in 2020 were $3,470 without taxes and $6,087 with taxes.

Closing costs can often be negotiated, though.

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Ideally, the negotiation process would take place while you’re still shopping for lenders so you can compare fees between companies. But if you’ve already chosen a lender, you may still be able to lower your expenses. Here are five steps to negotiating your closing costs.

1. Request a loan estimate

Narrow down your top three or four lender options, then ask each one for a loan estimate.

A loan estimate is an itemized list of fees so you can see exactly what the company charges you for. For example, you may see that one lender charges $100 as an application fee, another charges $75, and the third doesn’t impose an application fee at all.

Once you understand how much you’ll pay for each service, you’re in the position to start negotiating.

2. Look at lender fees

There are certain fees a lender must charge. For instance, it will charge you an appraisal fee because it needs to pay the appraiser.

But most lenders also charge what are known as “lender fees,” which are charges that go directly to paying the lender. These are the fees you can negotiate to either pay less or waive the fee completely.

Here are some common negotiable lender fees:

  • Origination fee
  • Application fee
  • Processing fee
  • Credit check
  • Miscellaneous fees — yes, you may see a generic “miscellaneous” section on your loan estimate

3. Ask about third-party vendors

Yes, the lender has to pay third-party vendors who take care of the home appraisal, home inspection, homeowners insurance, and title search. But the amounts listed on the loan estimate are probably for the lender’s preferred vendors — which means you don’t have to use those vendors.

Ask the lender which of these vendors you have to use and which are optional. Then you can shop around for companies that may charge you less.

Negotiate lender fees, then shop around for third-party vendors who will charge less than your lender’s preferred vendors.

4. Consider rolling closing costs into your mortgage

A lender may be willing to roll some or all of your closing costs into your mortgage principal. Instead of paying thousands at closing, you’ll pay off these charges over time along with the rest of the amount you borrow.

This strategy will save you money in the short term. But it will cost you more in the long run, because you’ll pay interest on costs rolled into your mortgage principal. You should also think about whether you’re willing to make higher monthly payments for years in exchange for lower closing costs.

5. Search for homebuyer assistance programs

Ask a lender if it has any grants or loans to help with closing costs. For example, the Chase DreaMaker mortgage is a loan for lower-income borrowers that includes up to $5,500 in grants you can use for a down payment or closing costs. Bank of America has a down payment/closing cost assistance program that varies by state.

Don’t assume a lender will tell you about such programs right off the bat. Ask what your options are.

If your top lenders don’t have any assistance programs, search for loans and grants in your state. Each US state has program for first-time homebuyers who qualify.

About the author

Laura Grace Tarpley is an editor at Personal Finance Insider, covering mortgages, refinancing, and lending. She is also a Certified Educator in Personal Finance (CEPF). Over her five years of covering personal finance, she has written extensively about ways to navigate loans.

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