Which Closing Costs Are Negotiable?

For home buyers getting a mortgage loan, closing costs are a significant expense, especially combined with the price of a down payment. 

As such, borrowers must save up before a home purchase to cover these costs.  However, with some sound advice and persistence, borrowers can negotiate closing costs with lenders to reduce certain fees and save on the cost of closing a loan.

During slow periods in the real estate market, lenders often compromise with borrowers and adjust prices. While fee reduction for closing costs are negotiable, lenders will not freely offer these advantages to potential home buyers. 

Accordingly, first time home buyers and borrowers with little loan experience who are unfamiliar with the process should be aware of these opportunities. The following closing costs can be negotiated or circumvented:

1. Attorney Fees

While some lenders require that a lawyer is present to review a borrower’s home loan documents, many will not. Avoid paying the few hundred dollars for this fee, discuss with your lender whether or not this closing cost is necessary to close the loan.

2. Origination Fee

This fee often will be summed as “the price of services rendered.” Essentially, this fee represents the lender’s fee as payment for originating the loan, though as with any purchase of service or goods, this closing cost fee can be negotiated.

3. Appraisal Fee

An appraisal can sometimes be double-charged. Be sure to check with your lender and review your records to verify that you will not pay the appraisal fee a second time at closing.

4. Documentation Fee

Documentation fees are often referred to in the mortgage industry as “junk fees,” as they do not serve any purpose to the borrower, and often, lenders will utilize these charges to inflate the cost of the loan. One potential junk fee charged by lenders is a fee levied for credit score verification. Accordingly, borrowers should always negotiate these closing costs lower before closing a loan.

5. Title Insurance

Lenders will automatically select a title insurance company when finalizing a loan. However, frugal borrowers can shop around for a cheaper title insurance company to save some money.

While the majority of mortgages include closing costs attached, some specialized loans, provide borrowers with more flexibility, allowing them to arrange to have the closing costs paid by the seller. Regardless of mortgage program, borrowers should always negotiate to closing costs to reduce the fees mentioned above.

How to Negotiate Closing Costs

First, negotiate with the seller to take over as many expenses as possible. Don't let tradition or custom get in your way; just because the "buyer always pays for the survey" doesn't mean the seller can't pay for it in your case. 

Also, keep in mind that FHA and VA loans do not allow points; thus any points in financing these loans must be paid by the seller. Even if you are planning to use a conventional mortgage, see if the seller will pay for some points.

Next, negotiate with your attorney on his or her fees. Although attorneys may base their fees on a percentage of the price of the home, you may be able to negotiate to pay an hourly rate. 

Also, you may decide that you also need to rewrite your will now that you have a major asset in your estate. If you are equity sharing, you will need a legal contract to that effect. 

By packaging several legal services together (real estate closing, equity sharing contract, will), you can get a reduced rate from your attorney.

Closing costs that can be negotiable include: application/origination fees, credit report fees, points, attorney fees (yours and the lender's), document preparation fees, surveys, inspections, money to the seller, and escrow funds from the seller (for cleanup, radon mitigation, and the like).

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.