When you are shopping around for a mortgage, two of the first things you will look at will be the interest rates and down payments you will be required to make. However, there is another set of fees that you should receive careful consideration before you agree to do business with any one lender: your closing costs.
Not only do closing costs vary among banks and other mortgage companies, but this is one area in which you can usually manage to negotiate better deals. You also need to be careful of lenders who will add on completely unnecessary costs in the hopes that their clients will just go along with everything to ensure a speedy closing. This is why you must obtain a GFE, or Good Faith Estimate, from any prospective agents so that you can evaluate the charges and compare them to those being offered by other companies.
Fees to Expect
There are some non-negotiable closing costs, and knowing what those are can help you to negotiate the others as thoroughly as possible. Expect to pay in full any costs that are owed to other people rather than the mortgage company: title fees, appraisals, attorney's fees, title insurance, and a credit report. However, every once in awhile you will find a disreputable lender who will inflate these charges. Comparing the GFE from one lender to another will allow you see if one is charging a disproportionate amount for one or more of these things. If they are, be sure to question it.
What Is Negotiable
Typically, you can challenge your mortgage agent to lower the costs for various office-related fees like courier services and express mail. You should also beware of what have become known as “garbage” or “junk” fees. These are add-ons that serve little purpose except to make more money for the lender and can include things like underwriting and application fees. Look closely at the Good Faith Estimates from several lenders and see if they compare. If not, talk to the lenders and ask that changes be made and fees reduced.
You may also find that some agencies tack on additional services that you really don't need. These are things like “credit insurance” that will up your costs without actually providing anything that a mortgage company would not ordinarily give you for free. You can simply tell your agent that you wish to have these extras removed from your mortgage before you sign on.
Special Circumstances
If you have exceptional credit (a score of 700, 750, or 800+), you will have more bargaining power than someone who has average or poor credit. As a result, you will be more successful at having your fees and closing costs lowered. Be careful not to see a low interest rate and become so invested in that that you forget to look at the rest of the picture. You are not stuck with a mortgage until you close, so take every last second to make sure that everything is in order and you are protected from scams and junk fees. Being a smart and cautious borrower will get you the greatest deals available!
