How to negotiate your mortgage closing costs

What are closing costs?

Home closing costs vary depending on several factors, including your state and lender. It’s best to plan for closing costs of 2% to 5% of your home's purchase price.

Closing costs will be detailed in the Closing Disclosure, which you receive from the lender at least three business days before closing. Closing costs typically include:

• Mortgage application fee
• Appraisal fee
• Credit report fee
• Title search and title insurance
• Survey fee
• Recording fee
• Property tax proration
• Homeowners insurance premium
• Mortgage points, if any
• Escrow or attorneys fees

How much are closing costs?

Closing costs differ significantly based on the property’s location. For instance, homes in Washington, D.C., and Delaware have the most expensive closing costs, with averages of 3.9% and 5.4% of the home’s sales price, respectively, according to CoreLogic. Missouri and Indiana have the lowest closing costs, with averages of 0.8% and 0.9%.

Here’s an idea of what you’ll pay for different closing costs:

• Appraisal fee: Appraisal fees typically range from $350 to $650, but appraisers set their own rates. For example, if you’re buying property in a rural area, it might take an appraiser more travel time and research, which can mean a higher appraisal fee.
• Origination fee: The lender often charges a 0.5% to 1% origination fee upfront to start a new home application. For example, if you purchase a $400,000 home, expect to pay a fee of $2,000 to $4,000.
• Title fees: The title is a document saying the seller can legally sell the property. Title fees range from $300 to $600. The seller or the buyer might pay them, depending on the property’s location.
• Title insurance: Title insurance protects the buyer from losses if there’s something wrong with the property that prevents them from owning it outright. It averages about $1,000.

Which closing costs are negotiable?

Closing costs you can often negotiate include:

• Title insurance: Both the lender's and the owner's title insurance policies are negotiable.
• Title search fee: This fee can be paid by the seller or buyer or be split between them.
• Survey fee: This fee can be paid by the seller or buyer or get split.
• Escrow or attorneys fees: This fee can be paid by the seller or buyer or be split.
• Homeowners insurance: You can shop for your own home insurance company. You don’t need to use one the lender recommends.
• Mortgage discount points: Your lender may be open to negotiating points, which are essentially prepaid costs to lower your interest rate.

How much negotiation power you have for these costs depends on the local market conditions and the home. If you’re buying in a seller’s market and purchasing a home at or below market value, you might not have any room for negotiation.

Which closing costs are not negotiable?

Not all closing costs are negotiable. Some of them are fixed expenses required by lenders or government agencies.

Closing costs that are not negotiable include:

• Credit report fee
• Recording fee
• Appraisal fee
• Property taxes

How to negotiate closing costs

You can negotiate closing costs by discussing them with the seller, lender or real estate agent involved in the transaction.

Here are five strategies to help negotiate closing costs:

1. Compare lender costs. Get quotes from several lenders and compare the closing costs they charge. This will give you an idea of what is a fair deal and what is not.
2. Ask about local grants or closing costs assistance programs. Your area might have special grants or incentives available. Additionally, qualified buyers such as veterans might be eligible for special assistance programs.
3. Ask the seller to pay for some of the costs. Many sellers are willing to contribute to closing costs as an incentive to close the deal. This works in your favor if you’re buying in a slow market or buying a home that’s been on the market for several months.
4. Ask to have certain costs waived. Some lenders may be willing to waive some fees if you meet certain conditions, such as maintaining a certain credit score or having a certain amount of money in savings.
5. Ask for a no-closing-cost loan. Some lenders offer loans with no closing costs. However, bear in mind that these loans typically have higher interest rates. So, while this allows you to save money upfront, it can cost you more over the life of the loan.

Bottom line

Buyers can and should negotiate closing costs, especially if it means saving a substantial amount on fees. While you can’t lower every closing cost, it’s worth looking at the cost breakdown in the Loan Estimate and Closing Disclosure and asking for the lender or seller to cover some expenses.