Closing costs in the mortgage industry are a staple. All mortgages require certain third-party services needed in order to complete the approval process. But are these costs a given? Can you negotiate for some of them to be reduced or even vanish? Some you might be able to, others maybe not.
There are two basic types of closing costs, recurring and non-recurring. Recurring closing costs are those that you will pay as long as you own the home. These are costs such as property taxes and insurance. Property taxes are set by local and state entities, but you can shop around for insurance. It’s not exactly negotiating but it is something you can control and shop around for. If you decide to lower your rate by paying discount points, that’s completely up to you.
Primarily, the costs you might be able to negotiate are your lender’s fees. Lenders will charge some fees to offset the initial overhead incurred during the course of your loan process and approval. Common lender fees might be underwriting, documents, or processing.
Your lender isn’t going to voluntarily waive these fees, so you’ll have to ask. Some lenders might reduce or even waive certain fees but most of the time the waived fees are taken out of the loan officer’s pocket so you probably won’t find too many who will be happy to do so. Lenders can also adjust the interest rate and then reduce some fees, but then your rate and monthly payment will be higher.
All other fees will still be there, it’s just a matter of who pays for them. Perhaps your lender can help out and even the sellers might be in a position to pay for some of your costs, but they won’t go away entirely. The notion of a ‘no closing cost’ loan is a misnomer. There are always costs, it’s just a matter of which pocket they’re being paid from.
When a lender advertises a ‘no closing cost’ loan, it’s a bit misleading. The lender needs to tell you how those costs are being paid. If it’s in the form of a higher rate, your loan officer can work with you and do a little math to see if a higher rate instead of you paying closing costs makes sense.
Essentially, you might be able to negotiate with your lender regarding lender fees; you’re really not going to make much of an impact on other fees.
