Can I Reduce or Negotiate My Closing Costs?

Just when you think you’ve planned for everything regarding your homebuying journey, closing costs hit you. Closing costs are the fees the lender requires to process the transaction between you (the buyer) and the seller.

Whether you were prepared for them or they took you by surprise, knowing your options is the best plan for your budget and your stress level. Can you reduce or negotiate your closing costs? Read on to find out.

Can I Reduce or Negotiate My Closing Costs?

You betcha. Closing costs are one of the many items that can be negotiated during the purchasing process. Since closing costs add up to a significant sum, usually between 3 to 6 percent of the home price, attempting to get some or all of them off your plate can save you quite a few Benjamins.

There are two viable options for dealing with closing costs rather than forking over cash up front to cover them.

No. 1: Have the Seller Pay the Closing Costs

A popular option for dealing with closing costs is to get the seller to pay for some or all of them. Sellers may agree to split the closing costs, or they may agree to pay for all of them. Seller-paid closing costs depend on various factors like how much you’re paying for the house, how in-demand the property is, and the number of other concessions you’ve already requested.

No. 2: Roll Closing Costs Into Your Mortgage Loan

If the seller doesn’t budge regarding closing costs, you can sometimes choose to roll them into your mortgage loan. This option depends on whether the additional mortgage amount puts your loan-to-value (LTV) and debt-to-income (DTI) ratios over the limit. It also hinges on the type of mortgage loan you’re using, as some of them don’t allow rolling in closing costs.

Another important aspect to think about is that your mortgage payment will increase when you roll closing costs into the mortgage. The fees are added to your principal, interest, taxes and insurance, which are known as your PITI payment. If your monthly payment was already going to squeeze your budget, rolling in the closing costs may not be a smart idea.

Fees That Cannot Be Negotiated

Homebuyers should be aware that, while many parts of the purchasing process are negotiable, some of them are practically written in stone.

  • Credit check fees. The lender will pull your credit report and use it as a factor to approve or deny the mortgage loan.
  • Appraisal fees. Appraisals are required by lenders to determine the property’s value and must be paid by the borrower.
  • Title transfer and recording fees.

While not an actual closing cost, you’ll also be required to pay a non-negotiable amount up front for your new house’s property taxes.

Understanding closing costs and your options for handling them can help you prepare better for that part of your purchasing process. Never hesitate to ask an experienced loan officer questions about closing costs or any other part of the homebuying journey.