At the time you sign your mortgage papers, you will have to pay closing costs. These costs add significantly to the cost of your loan, but few borrowers, even seasoned ones, can detail exactly what is included or how much these fees will run. Lenders are required to provide you with a good faith estimate, known as a GFE, of closing costs that they must stand behind for 10 days. If you have already selected a lender and are ready to close, you may be able to negotiate lower fees on some closing fees. If you are still in the process of selecting a lender and are applying with several, you can comparison shop not onlythe major terms of the loan, such as the interest rate, but closing costs as well.
Items you will need
- Complete list from your lender of closing fee estimates on your loan, the "good faith estimate"
- List of items normally included in closing costs, a cost range and how those costs are calculated, available from several online sources
Ask potential lenders what they categorize as closing costs. They should also tell you what are fixed fee amounts, such as the appraisal fee, and variable fee amounts, such as attorney fees. Real estate closing costs typically include title insurance premiums, deed recording fees, appraisal fees, down payments, attorney fees and brokerage commissions and loan origination fee ,also known as "points," although some lenders tack on other fees as well. Closing costs may also vary from state to state.
Compare closing costs your possible lender or lenders have provided to you with ranges for what those costs usually are. A good source for this information is Bankrate.com, which has an online form you can use to estimate closing costs. Recording and notary fees for a home mortgage typically run $50 to $100. An appraisal is typically $200 to $400. Attorneys fees vary, depending on the hourly rate of the attorney and the complexity of the transaction. Depending on the value of the property you are buying, closing costs range between 2 to 7 percent of the price of the home. Add up all the closing fees for each lender.
Compare and contrast closing costs for each lender with whom you have applied for a loan. Also, compare fees against the ranges provided by Bankrate.com. Some lender's closing costs may be much higher than others on your list. While you can not negotiate some fixed-cost items such as appraisals, you can negotiate lender's fees, and it never hurts to ask for a lower rate. If you have already selected a lender, it is useful to know what other lenders in your area charge for closing fees. You might use this information to negotiate lower closing fees with the lender you have selected.
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