Closing costs on a home loan generally include:
- Loan application fees.
- Appraisal fees.
- Loan origination fees.
- Credit report fees.
- Property survey fees.
- Flood certification fees.
- Title search, insurance, and fees.
- Recording fees for your home's title and deed.
- Prepaid mortgage interest.
- Points on your mortgage (fees paid to your lender in exchange for a reduced interest rate).
And that's just to name a few. In fact, you should expect your closing costs to amount to 2% to 5% of your mortgage, so if you're taking out a $200,000 home loan, you're looking at $4,000 to $10,000 you'll need to come up with before your mortgage is finalized. Ouch.
Another thing: As a buyer, you're generally the one responsible for closing costs on your home. As such, you may be wondering whether there's wiggle room with those expenses. And the answer? It depends.
Can you lower your closing costs?
Often, the fees you'll be charged in conjunction with closing on your mortgage are set in stone, but in some cases, your lender may be willing to negotiate. Your lender is supposed to give you a detailed breakdown of your estimated closing costs well ahead of your closing date, so at that point, you'll have an opportunity to familiarize yourself with those fees and see whether your lender will come down on any.
For example, you may manage to get your lender to come down on your loan application fee or waive the points assigned to your mortgage while honoring the rate you've locked in. How do you do that? Speak up and ask.
That said, if you can't manage to lower your closing costs, you still have a couple of options to explore. First, you can see whether your seller is willing to pay some of those costs, thereby easing the burden on you. If you're paying your seller's asking price for your home, he or she may be willing to chip in.
Another option is to roll your closing costs into your mortgage in the form of a higher interest rate on your loan. Doing so means you won't have to come up with so much money upfront, but it will make your mortgage more expensive to pay off on a month-by-month basis.
How to avoid getting stuck with high closing costs
The best way to avoid closing costs that are higher than they need to be is to shop around for a mortgage and not only gather details on the rates different lenders are willing to offer you but also see what their closing costs entail. If you choose a lender whose closing costs are more reasonable from the start, you'll have less to worry about -- and less money to part with -- when those many fees come due.
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