Are you buying a house in 2021? It’s been a wild ride for us. But, thankfully, after facing limited inventory, ridiculous bidding wars, all-cash offers, and nearly purchasing the wrong place, we finally found a home we love.
So what comes next? A race to the settlement date, which includes applying for financing for the first time since we paid off our mortgage a year and a half ago.
Now comes the not-so-fun part too, negotiating closing costs. The sticker shock of closing costs never ceases to amaze me. Why are the numbers so high? Where does all that money go? More importantly, how can I save on closing costs?
Here’s what I tried.
Negotiating Closing Costs
Lenders are required to send a loan estimate three days after applying for a loan. This document includes a detailed price list for all services performed before settlement.
The loan estimate typically includes estimated prices for:
- Application Fees
- Origination Fees
- Appraisal Fees
- Credit Report Fees
- Attorney Fees
- Title Insurance (Owners)
- Title Insurance (Lenders)
- Document Preparation
- Notary Fees
- Attorney’s Fees
- Recording Fees
- City/County Tax
- Pest Inspection
- Flood Determination Fee
- Settlement or Closing Fee
- Realtor Admin Fee
- And More
Some of these numbers, like taxes and recording fees, can’t be altered. But others can be negotiated, so let’s dig into the nitty-gritty details.
Waive the Realtor Admin Fee
Real estate agents collect a realtor admin fee in addition to commissions provided by the seller. If your agent charges a fee, it will appear in the contract they ask you to sign when you begin the home buying process.
Be careful. Most agents won’t mention this fee, and many buyers don’t notice that little line in the contract. Buyers assume the seller will pay commissions, and they won’t owe the agent a penny.
But in many cases, it’s not true. If you didn’t ask your realtor to waive the fee, you would see it listed as Admin/Flat Fee on the loan estimate.
If you see it listed there, you can ask your agent to waive the fee, but they can refuse. After all, you signed the contract stating you would pay it.
Of course, it never hurts to ask. Real estate agents often find work through referrals. If they think you are likely to refer a new client to them, they may remove the charge. Asking the realtor to remove this fee saved us $495.
Compare Mortgage Rates
Mortgage rates determine how much interest you’ll pay over the life of your loan. So once you find a house you love, or preferably before you find one, you’ll want to compare mortgage rates.
Some banks and credit unions list their mortgage rates directly on their websites. Others ask you to fill out forms or talk with an advisor over the phone.
That’s fine. Do whatever it takes to receive a few quotes. Over the life of a loan, even a fraction of a percentage point makes a big difference in how much interest you’ll pay.
Once you have a couple of quotes on hand, it’s time to compare them. If some rates include points, make sure to compare them using this mortgage points calculator.
Search for the cheapest rate on your list. If the rates are equal, you’ll need to compare loan origination fees too.
Reduce Loan Origination Fees
What is a loan origination fee? A loan origination fee is an upfront fee charged by a lender to process your loan application.
Some lenders charge one fee. Others break down costs into individual components. It doesn’t matter if one charges more for underwriting and another charges more for appraisals. What matters is how much the origination fees cost when added altogether.
Also, be wary of lenders that do not charge an origination fee. Many of these lenders hide their fees through other charges. For example, they may charge very high prices for appraisals and other loan processing services.
If you receive a list of fees, add them together and compare. Which lender charged the lowest mortgage rates and fees? That might be the best lender to choose, but not always.
Applying for a loan requires a lot of time and communication between loan processors and buyers. So make sure you choose a responsive lender you trust. With competitors’ rates in hand, you can also try to negotiate lower fees with a lender of your choosing.
In my experience, credit unions typically provide the best of both worlds. We’ve found the cheapest rates and fees by skipping big banks in favor of smaller ones.
Ask for the Reissue Rate for Title Insurance
Next up, title insurance. What is title insurance? Title insurance protects lenders and buyers from financial loss associated with title issues, including liens, encumbrances, or mistakes in the title.
Buyers are required to purchase title insurance for lenders, so you can’t skip this step in the process. A homebuyers policy is optional, but most people agree you should buy one as well.
In most states, you can choose the title insurance company you want to use, and doing so can save you thousands of dollars.
How? First, ask the sellers for a copy of their current title insurance. If their policy is less than ten years old, you can request a reissue rate from the title company. On average, this step will save you 40% off the cost of a new policy. Most title companies will not offer the reissue rate by default, so make sure to ask about it specifically.
Compare Title Insurance Prices
Next, call a few title companies for quotes. Then compare the price of the policies and the fees associated with them.
One company I contacted charged an $850 settlement fee—the other charged $350. We asked the first company to price match, which they did without hesitation. Wouldn’t you like to save $500 that easily?
Lastly, double-check line items on your closing disclosure before your settlement date. We found multiple errors. Don’t assume the figures will be correct—review title insurance charges well before settlement.
Comparison Shop for Homeowners Insurance
When was the last time you price compared homeowners insurance policies? Was it the last time you bought a house? Many of us renew the same policy year after year. Shop around for policies and see which agency has the best price.
A lot of insurance agencies offer multi-line discounts. Don’t forget about these when comparing.
Perform Price Comparisons for Extra Services
Do you intend to check for wood-destroying insects? Do you need a survey of your property? If so, shop around for these services as well. The companies recommended by real estate agents, lenders, and title companies aren’t always the cheapest.
Close at the End of the Month
Lastly, if you want to save on closing costs, do your best to schedule your settlement date for the last day of the month. If you close on the first day of the month, you’ll owe interest for all thirty days. If you can settle on the thirtieth, you’ll only owe interest for that one day.
Saving on Closing Costs
Overall we saved roughly $1500 on our closing costs by testing out the tips above. Do you have any suggestions for saving on closing costs? Do you have advice I forgot to mention? If so, leave a comment below.