Whether you’re a first-time homebuyer or you’ve found your dream home, negotiating costs can be a long-drawn-out process. So, you’re wondering how to negotiate mortgage closing costs, right? There are a few different strategies you can try to reduce your mounting expenses and closing costs.
First and foremost: negotiate everything. After gathering all logistics and costs, the typical total for closing costs comes between 2 to 4 percent of the home purchase price. There are multiple ways you can talk down these costs.
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5 Ways to Strategically Negotiate Mortgage Closing Costs
1. Study and breakdown the loan estimate form
When discussing finances for your home with your lender, they are required to give you a loan estimate form within three days of you completing your mortgage application. That said, you are more than welcome to ask for the loan estimate form sooner if you want it. Nothing prevents them from giving the loan estimate form to you sooner.
A big reason why you should ask for the loan estimate form as soon as possible is so you can go through the itemized list of costs, which includes your loan amount, interest rate, and your monthly payments. This will allow you to strategically negotiate mortgage closing costs.
When you receive the loan estimate form, skip to page two and look under the section called “Services you can shop for.” Under this section, there are recommended services, such as pest inspection, survey, and fees for title search, for example.
You are not required to go with the list of lender’s preferred vendors. Your lender is required to offer you alternative options, so you can shop around for lower-priced vendors that fit your budget.
Do note that if your independently selected vendor decides to change prices prior to the closing of your home, you will have to pay for any additional costs. If you were to go with a lender-approved vendor, the price isn’t allowed to change by more than 10 percent of the quote provided to you.
3. Carefully look at lender fees
When you’re reviewing all fees associated with your lender, make sure you read everything very carefully. Many lenders like to add additional fees, such as origination and underwriting. Take a look at the numbers you are being charged for those fees. You may be able to negotiate with your lender to give you some discounts on those costs.
The second thing you can do is look at offers from different lenders. You are not required to negotiate with just one lender. You can look at and compare different offers.
You should try to get an estimate before you submit your application so that way you have an idea of the best deal you can get. Since prices can change fairly quickly, get the estimates on the same day so you can make the best decision to strategically negotiate mortgage closing costs.
3. Look at what the seller is paying for
You’re trying to buy a home and may have some obligation to pay closing costs, but the seller also has obligations. For example, the seller is typically obligated to pay for the real estate agent’s commission. You can talk to the seller and ask them to contribute for your portion, reflecting as “seller credits” on the loan estimate form.
This is worth looking into to negotiate mortgage closing costs. These days, though, the market is very seller-focused, so you may not be able to negotiate this, but it doesn’t hurt to try, right? Give it a shot.
4. Look into grants and other types of assistance
If you are struggling to come up with cash upfront to negotiate mortgage closing costs as well as costs for your home purchase overall, there are different cities, counties, and states that offer financial assistance programs for qualified homebuyers.
You can explore your options by looking into different programs, varying by state. If you’re looking to purchase a home within your home state, look at the state’s website for options on financial assistance for your home so you can negotiate mortgage closing costs and bring the overall price down.
Many first-time homebuyers get help with down-payment and closing costs. Make sure to read the qualifications carefully so that you can pursue these grants and financial assistance programs.
5. Look into a no-closing-cost option
Yes, you read that correctly. If your lender offers it, you could look into a no-closing-cost option. This is usually done in exchange for a higher interest rate. It may not be the most ideal route because you’re exchanging saving some money upfront and paying more money over time, however, it is a way to negotiate mortgage closing costs and bring it down as a no-closing-cost option.
Your lender is absorbing these costs upfront, but you’re paying more over time. Keep this in mind before you seek out a no-closing-cost option.
Wrap up
It’s always a good idea to be prepared for mortgage closing costs. While this is said, you should always try to negotiate mortgage closing costs so you’re not stuck with a huge number that ends up being out of your budget.
Don’t settle for quotes and estimates lenders give you. Instead, seek out multiple options, pin lenders against each other so you can get the best possible deal.
Remember, you have two options available: negotiate with the lender and the seller. Don’t forget that you can negotiate mortgage closing costs with the seller. You do not need to feel pressured into anything. Every step has a lot of different options available.
For example, after negotiating with the lender and seller, the cost is still slightly over your budget, you can seek out additional options with state and local programs where you live. There are financial assistance programs with qualifications that you can try to pursue. There is no harm in trying to go after them. If you’re a first-time homebuyer, you should absolutely look into getting financial assistance from federal, state, and local governments. There are plenty of options available to negotiate mortgage closing costs.
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