When it comes to the closing costs for your new home, it’s hard to know whether or not you’re being over charged, especially when it comes to the loan origination fee. Therefore, it’s best if you spend some time learning a little bit about what each of the closing fees are for. Then you will be educated enough to determine whether or not you are being overcharged. Another thing many home buyers don’t realize is that there are some closing costs that are negotiable and some that aren’t. Therefore, having this piece of information could potentially save you thousands of dollars in the long run because based on your newfound knowledge, you will not only know where you can cut costs, you will also not be taken advantage of because you will have already negotiated down the fees that can be reduced or eliminated. Problem solved! So let’s start by explaining what closing costs are then we can break down the ones that are and aren’t negotiable and why the loan origination fee is one area where you need to pay particular attention to if you don’t want to be overcharged.
What are closing costs and how much are they?
Closing costs are the fees added to the purchase of a house to cover the expenses for taxes, transfer fees, a settlement fee to your attorney, title insurance firm and the lender. There are also fees that go to the city, county and the state government. Then there are the fees that are divided between the brokers, surveyor, couriers and agents.
Closing costs typically range from 3 percent to 6 percent of the cost of the home. And closing costs will vary depending on your location, because each city, state and county have the authority to add more fees to your final costs. These added fees are also called transfer taxes or impact fees. Some of these fees represent the actual cost to the lender by a third party and some of the fees are charged to you directly from the lender. And this is sometimes where a buyer can be taken advantage of if they aren’t knowledgeable on this topic. That doesn’t mean these fees are being inappropriately charged. It just means the loan origination fees are an area where you need to pay closer attention to what you’re being charged.
Which closing costs are negotiable?
Many people don’t realize that several of the closing fees are negotiable. Once you learn which closing fees are negotiable and which ones aren’t, the ball is in your court and you will greatly reduce the chances that you’ll be overcharged in any way.
Here are the most common negotiable closing fees:
Application Fee. The application fee is one of those fees that are commonly used to get more money out of you. Real estate brokers and lenders can buy credit reports for little or next to nothing, yet they will usually charge you upwards of $50 for an application fee. You should definitely negotiate this fee because you will usually get it. It won’t cost the lender much to waive this fee for you, it will just slightly lower the amount of money they make off you.
Discount Points. The discount points will help you as a buyer because the more you put down, the lower the interest rate will be. That means the discount points are simply pre-paid interest. So technically you don’t have to pay discount points if you don’t want to, but it would lower the amount you end up paying initially. The best way to decide whether or not to pay discount points is to determine how long you plan on living in that home. If you will be living in your new home for five years or more than you probably shouldn’t pay discount points.
Loan Origination Fees. OK, here it is. This is where you will find the most fees that can be successfully negotiated. However, if you are a high risk borrower, have bad credit or unverifiable income, you will probably have to pay this fee because ultimately the lender will have to do a lot more work just to get your loan approved. Another thing you will have to pay particular attention to when negotiating your loan origination fees is the fact that a lender could be lowering your loan origination fees while raising the interest rate at the same time. That means you have to look at each line item on the Good Faith Estimate form and the HUD-1 form to see exactly what you are being charged and ask for a detailed explanation on everything, then attempt to get those fees lowered. But as we mentioned above, make sure the lender isn’t telling you they will lower the fees, but in turn are raising your interest rate. The best way to make sure is to do a little comparison shopping, which we’ll discuss later in this segment.
Admin Fees. These are also called underwriting fees and if you’re using a broker, you shouldn’t have to pay any of these fees because the broker isn’t going to be performing any underwriting on your loan the lender is. However, if you get your loan through a bank, then this fee might be required.
Appraisal Fee. This is a fee that is required; however, you should make sure you are not being taken advantage of by an inflated fee. The appraisal fee will generally run somewhere between $200 and $400. Additionally, you should always receive a copy of the appraisal you paid for.
Which closing costs are not negotiable?
While there are plenty of closing costs that are negotiable, there are some that aren’t. The fees that aren’t negotiable are as follows:
- Title fees (although you can shop around for a lower rate)
- Doc stamps
- Courier fees
- Tax-related service fees
- Title insurance
- Recording fees
How can I make sure I don’t overpay the loan origination fees?
If you don’t take the time to learn what the closing costs are and why you have to pay them, you open yourself up to being taken advantage of because lenders and brokers know that most people don’t know anything about real estate and can therefore be made to pay unnecessary or bloated fees. The best way to determine whether or not you are being overcharged on your loan origination fees, or any of the other fees for that matter, is to compare the loan origination charges, lender fees and your interest rate with other banks and lenders. This comparison must be more than a couple of lenders, if you want to get an accurate picture. Yes, this will take some time and effort; however, you could potentially save yourself thousands of dollars in the long run simply because you chose to educate yourself so you could avoid being taken advantage of.
