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Taking out a mortgage can be an expensive proposition. Not only do you have to bring down payment funds to the table, but you’ll also need to cover closing costs.
Closing costs are the various fees charged by mortgage lenders to complete a home loan. These fees run the gamut from registration fees and tuition fees to title search fees and insurance fees.
The amount you will spend on closing costs varies depending on the lender you choose to work with. But typically, closing costs are 2-5% of the mortgage amount you sign up for. So if you’re taking out a $300,000 mortgage, you could be looking at anywhere from $6,000 to $15,000 in fees. Oh.
But while closing costs can be expensive, you may be able to negotiate your own. And now is a good time to do that for a very good reason.
Take advantage of less demand
During the latter part of 2020, the demand for mortgages increased as lending rates fell to historic lows. Demand for mortgages remained quite strong in 2021. But demand for home loans has declined significantly in recent months due to rising mortgage rates.
More: Our picks for the best FHA mortgage lenders
In this period last year it was possible to take out a 30-year mortgage for about 3%. You’re looking at over 7% for the same loan today. This is clearly a world of difference. And with home prices still high nationwide, buyers aren’t clamoring to buy homes like they were a year ago.
In fact, the Mortgage Bankers Association reports that home loan applications were down 28.6% in October compared to October 2021. And those applications were down 13% compared to September 2022.
As demand for mortgages has declined, lenders aren’t doing as much business as they did a year ago. And they certainly don’t want to lose business. Therefore, your lender may be more willing to negotiate closing costs to keep you from taking your business to a competitor with lower rates.
Some rates may not be negotiable
There are some fees as part of your closing costs that your lender can control and others you can’t. Filing fees, for example, are typically set at the county level, so if the fee is $50 to place your mortgage on a public record, it’s not something your lender can change. But you might be able to get your lender to lower application fees, appraisal fees, and more, so have that conversation and see where it takes you.
We are unlikely to see a sharp increase in mortgage demand any time soon, unless rates magically start falling. This is something lenders are aware of, which is why they can now be more flexible with closing costs than they used to be.
Of course, if your lender won’t negotiate your closing costs but still offers the best deal, you should know that you don’t necessarily have to pay those fees upfront. Most lenders will allow you to build those fees into your mortgage and pay them off over time, so it’s one less upfront expense to worry about.
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