NEW YORK (MainStreet) — While seeking the lowest mortgage rate may be the best bet for many potential homeowners to save thousands of dollars over the life of their loan, slashing your closing costs also reduces fees.
Decreasing the amount you pay on closing costs can also net consumers hundreds of dollars. Depending on where you live, closing costs can include many fees such as title insurance, mortgage application fees, brokerage fees and prepaid points.
“Some closing costs are more negotiable than others, so it helps to know where you might have some wiggle room,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.
Over the past year, mortgage closing costs declined 7% and now average $1,847 on a $200,000 loan, according to Bankrate.com, the North Palm Beach, Fla. based financial content company. The company surveyed up to ten lenders in all 50 states and Washington, D.C. in June 2015. Bankrate’s researchers obtained online good faith estimates for a $200,000 mortgage to buy a single-family home with a 20% down payment. The costs include fees charged by lenders, as well as third-party fees for services such as appraisals. The survey excludes discount points, taxes, title fees, property insurance, association fees, interest and other prepaid items.
The highest average closing costs vary from state to state with the highest costs occurring in Hawaii at $2,163, followed by New Jersey at $2,094, Connecticut at $2,033, West Virginia at $1,971 and Arizona at $1,969. The lowest closing costs are in Ohio at $1,613, Idaho at $1,682, Wyoming at $1,689, Utah at $1,697 and Maine at $1,727.
“Homebuyers have more say over closing costs than they think,” said Holden Lewis, Bankrate.com’s senior mortgage analyst. “The costs vary between lenders, so everyone should compare at least three different options. You don’t have to go with the lender your agent suggests.”
The average origination fee declined 22% to $1,041 and the average third-party fees rose 22% to $807 in the U.S. The origination fee is charged by a lender for every loan.
Some of the expenses can be covered by various housing programs funded by federal grants. Workshops to educate home buyers are sponsored by HUD- approved nonprofit agencies are a “great way to gain a better understanding of closing costs,” said McClary.
While negotiating may seem like a cumbersome process, consumers can discuss their options with lenders either in person as well as over the phone or email.
“Where it happens is not as important as it is to negotiate from a standpoint of being an informed borrower,” McClary said.
The mortgage industry is a competitive industry, so inquiring about closing costs when comparing offers will help home buyers save money, McClary said. Within three business days of your loan application, lenders are required to give you a good faith estimate which will show all of the estimated closing costs.
“Keep in mind that many of the closing costs is negotiable, so it is best to start as soon as the good faith estimate is in your hands,” he said.
The best methods of negotiating closing costs is in person and following that, try it over the phone, Lewis said. The negotiation process has two phases and the first part is the discussion with the lender about the lender's origination fees.
“Ask about individual fees and find out if they can be reduced,” he said.
The second part is by comparing fees for the title insurance and property insurance.
“In most places, there's a lot of variation among property insurance premiums and title insurance premiums, so you can save money by shopping different providers,” Lewis said. “The lender can give you a list of title insurers and title agencies that it works with.”
Consumers can also ask about a “no-closing-cost transaction structure” where the closing fees are paid by the lender, said Dan Smith, president of PrivatePlus Mortgage, which is based in Atlanta.
“Anyone seeking a mortgage should look at the big picture, rather than just one factor, such as closing costs,” he said. “That's just one piece of the puzzle.”