A mortgage is a ticket to a new home and a stable life for many, but there are plenty of steps between searching for the right loan and actually setting foot in a house. Some of this time may be spent working with the lender to hash out the specifics of the loan, including how much it will cover and what the ultimate cost will be. It's easy to assume that the interest rate on a mortgage is the only number worth worrying about. In fact, there are several other costs involved in a loan that homebuyers need to look out for.
"Closing costs can vary depending on location."
The fees tacked onto a mortgage that often get buried under a mess of paperwork are called closing costs. The total bill for closing costs can vary wildly depending on the exact location of the lender. While the nationwide average sits at just over $1,800 total for origination and third-party fees, a borrower in Wyoming can expect to pay less in closing costs than a buyer in New Jersey, for example.
In any case, closing costs are probably unavoidable. Fortunately, many of them are also up for negotiation. Before signing on the dotted line or even settling on a lender, take a look at the details behind the loan and be prepared for an honest discussion.
Examples of fees
Closing costs can reach high levels due to the work involved in creating a specialized loan product. These fees span a multitude of names and serve many purposes.
Lenders may charge borrowers to initially apply for a mortgage, along with gathering the requisite information like a credit report or background check. The lender often adds a price to underwriting the loan as well. Underwriting is the name for the process of crunching the numbers on a borrower by taking their financial information and ensuring they are in a good position to pay a loan back. The time involved in the underwriting process means higher costs incurred by lenders, especially with new mortgage regulations now in place.
Finally, lenders may charge fees for just about anything else. Courier fees, processing fees, administrative fees, rate-lock fees and broker fees are just a few of the closing-cost possibilities. Even if some of these prove relatively small, multiple $20 charges quickly add up to a substantial burden for mortgage applicants.
The art of the closing deal
While lenders have many costs of their own to cover, several specific fees listed at closing may be negotiable. Borrowers should pay special attention to the second page of their home loan estimate document, where closing fees are often itemized in sections A, B and C. While the first two sections are often standard, those in Section C can usually be discussed and modified. Borrowers simply need to ask if there's any chance at a discount. If a lender can be convinced that an applicant is eager to sign on, they might be willing to modify the terms of the loan to sweeten the deal.
Ultimately, the best way to reduce closing costs is to shop around for the best loan. Prospective homebuyers should look for lenders that not only offer low rates and fees, but can follow through with a strong reputation for customer service. A mortgage is far from a one-and-done deal - which is why borrowers should always prioritize their relationship with a lender.
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