Why Now's a Good Time to Negotiate Your Mortgage's Closing Costs

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  • Closing costs are the fees lenders charge to complete a mortgage.
  • While those fees can be hefty, you might be able to bring them down.
  • Demand for homes (and mortgages) is lower now, so you may be able to get your lender to reduce the cost of your application and appraisal fees.

You could end up spending less to finalize your home loan.

Signing a mortgage can be an expensive proposition. Not only do you need to bring down payment funds to the table, but you'll also need to cover your closing costs.

Closing costs are the various fees mortgage lenders charge to finalize a home loan. These fees run the gamut from recording fees to application fees to title search and insurance fees.

The amount you'll spend on closing costs varies based on the lender you choose to work with. But usually, closing costs will amount to 2% to 5% of the mortgage amount you're signing up for. So if you're taking out a $300,000 mortgage, you could be looking at anywhere from $6,000 to a whopping $15,000 in fees. Ouch.

But while closing costs can be expensive, you may have the option to negotiate yours. And now's actually a good time to do that for one big reason.

Take advantage of lower demand

During the latter part of 2020, mortgage demand surged as borrowing rates dropped to record lows. Mortgage demand then remained fairly strong in 2021. But in recent months, the demand for home loans has declined significantly due to rising mortgage rates.

Around this time last year, it was possible to sign a 30-year mortgage for around 3%. Nowadays, you're looking at more like 7% for the same loan. That's clearly a world of difference. And seeing as how home prices are still elevated on a national level, buyers aren't exactly clamoring to purchase homes the way they were a year ago.

In fact, the Mortgage Bankers Association reports that in October, mortgage applications to purchase a home decreased 28.6% compared to Oct. 2021. And those applications fell 13% compared to Sept. 2022.

Because mortgage demand has dropped off, lenders aren't doing the same amount of business they were doing a year ago. And they certainly don't want to lose business. As such, your lender may be more amenable to negotiating closing costs to avoid having you take your business to a competitor whose fees are lower.

Some fees may not be negotiable

There are certain fees within the realm of your closing costs that your lender can control, and some it can't. Recording fees, for example, are usually set at the county level, so if the fee is $50 to enter your mortgage into public record, that's not something your lender can adjust. But you might be able to get your lender to reduce its application fees and appraisal fees, among others, so have that conversation and see where it takes you.

We're unlikely to see a major jump in mortgage demand anytime soon unless rates magically start dropping. That's something lenders are aware of, and so they may be more flexible on closing costs now than they were in the past.

Of course, if your lender won't negotiate your closing costs but is still offering the best deal all in, you should know that you don't necessarily have to pay those fees upfront. Most lenders will allow you to roll those fees into your mortgage and pay them off over time, so that's one less initial expense you have to stress over.

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