For most people, buying a home is the largest purchase they’ll make in their life time, and as with most large purchases that involve multiple interested parties (the seller, the realtor, the seller’s bank and your bank, plus a title company in most cases) theres a TON of fees. Trying to get a straight answer on what all the fees mean, and if they’re necessary can be nearly impossible, largely because the people involved stand to make money on these fees. In a lot of cases, realtors will refer buyers to a mortgage broker, who will then give the realtor a kick-back if you sign with them. Many mortgage brokers can get you a better rate than going direct to your personal bank, but keep in mind there can be competing motivations.
Home closing costs can add up to thousands of dollars and realistically do not add to the value of your home. So the question we get asked most by new home buyers is which of these fees can they negotiate down, or eliminate all-together?
First things first: The Disclaimer: Fees can vary by state, so be sure to check what the rules where you’re buying your home. That out of the way, here are the most common fees you’ll see in your closing costs that can be negotiated:
- Home Owners Insurance: If you finance your home, you’re required to have home owner’s insurance. Your lender can in some cases try to set you up with an insurer, but be sure to shop around and see if bundling with your auto insurer can save you money.
- Discount Points: This is a fee you pay up-front for a lower rate. These vary by lender, but if you want to save money on closing costs for a higher rate (which can cost you more money over the term of the loan) be sure to discuss this with your lender.
- Origination Fees: Generally these are around 1% of the total loan amount, but they do vary by lender and are fully negotiable and can be completely removed in some cases. If a lender is trying to charge you well over 1% or is unwilling to negotiate, seek a competing quote.
- Loan Application Fee: Lenders generally charge you a 1-time fee for running your credit and confirming your employment for the loan. If you end up financing with them, you can in many cases get this waived.
- Title Insurance: Lenders will require you to get title insurance, which has a 1-time fee that protects the lender in same someone claims to have rights to your home (such as an estranged child of the seller for example who claims they inherited it). You can request your lender get a competing quote from a different title insurer, but they’re not required to. As always, if this fee seems out of whack, shop around.
- Underwriting Fees: This similar to an Origination Fee, where your lender basically charges you for processing and evaluating your loan. Keep in mind your lender stands to make a ton of money over the term of your loan from interest, so don’t be afraid to negotiate this fee down, or ask to remove it.
- Real Estate Commission: Both the selling realtor and your realtor (the buying realtor) are due commission for the sale of the home, but luckily the Seller generally pays the entirety of these fees. If for some reason this fee is being charged to you as the buyer, and you didn’t agree to pay the seller’s real estate commission, be ready to throw some flags on the play.
Any other fees you see are likely non-negotiable, such as taxes or government fees, but if you have any questions always ask for clarification!