How to negotiate home closing costs

By Aaron Crowe

Home buyers typically pay closing costs of 2-5 percent of the purchase price of a home, paying an average of $3,700 in fees to lenders and other parties that have a hand in paperwork you may never understand.

Fees vary by state and credit score, but so-called “junk fees” from mortgage lenders must be the same for all customers under federal law – fees such as origination, underwriting, administrative and doc-preparation. A HUD settlement statement lists the actual settlement costs, which shouldn’t change from the time you get it to when the sale is complete.

But home buyers can negotiate some closing costs, either themselves or through their real estate agent or lender.

The savings can be worth the effort, especially in areas where mortgage fees are highest. A recent survey found that New York and Texas have the highest closing costs at $5,435 in New York and $4,619 in Texas on a $200,000 loan. Missouri had the lowest, averaging $3,006.

Here are some closing costs worth checking for a better price:

Shop around for lender fees

Since lenders must legally charge the same fees to all customers, you won’t be able to negotiate fees with them. But you can shop around for the lender with the lowest lender fees through their good faith estimates.

But it’s unlikely you’ll save much money, or if you do, you’ll get what you pay for, says David Hall, president of Shore Mortgage, a residential mortgage lender in 50 states.

“The closing costs pretty much are what they are,” Hall says, and the lender’s good faith estimate of closing costs shouldn’t differ from the HUD statement.

But at least shop around for lenders so you’re sure that you’re getting a fair deal, he says.

“We encourage people to shop around, just to make sure people aren’t overcharging you,” Hall says.

Get a higher loan rate

If you’re willing to pay a higher loan rate, then lenders will discount the fees, Hall says.

The fees, no matter how much lower they are, can be added to the loan and are less painful to pay with a slight bump in a monthly mortgage payment.

To read the rest of the tips on how to negotiate closing costs when buying a home, read the full story at MortgageLoan.com, a client of Aaron Crowe, personal finance freelance writer.