Mortgage Closing Costs on the Decline: How to Get a Good Deal
If you’re in the market for a new home, the odds are stacked in your favor. A study by Bankrate.com shows that over the past year, mortgage closing costs dropped by 7%. Currently, the national average is $1,847 on a $200,000 loan. This is down from an average of $1,989 in 2014. Mortgage closing costs ranged from a high of $2,163 in Hawaii to a low of $1,613 in Ohio.
For this analysis, Bankrate asked for good faith estimates from roughly 10 lenders in densely populated cities in each state and Washington, D.C. The estimate was for a hypothetical $200,000 loan that would be used to purchase a single-family home for a borrower with a 20% down payment and excellent credit.
“Homebuyers have more say over closing costs than they think. 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,” said Holden Lewis, Bankrate.com’s senior mortgage analyst.
Take variable costs into account
Note that the study excludes variable costs such as homeowners insurance and taxes, so your final closing costs may be higher than the survey averages. You should brace yourself for these costs, which could add up to $3,000 depending on your state of residence. Nationwide, the average origination fee dipped 22% to $1,041 and the average third-party fee increased 22% to $807. Michael Becker, branch manager for Sierra Pacific Mortgage, told Bankrate he believes third-party fees increased because of inflation and the rise in the costs involved in providing services. Furthermore, he asserts origination fees declined because of the decline in mortgage rates.
Even though the average mortgage closing cost is on the decline, it still pays to shop for the best deal. Over time, every dollar you save can make a difference in your financial health. Know that you have the option to compare prices when it comes to closing costs. You can’t get a better deal on fixed charges such as taxes, but you can get a good deal in other areas.
Tips for lowering mortgage closing costs:
1. Ask for a deal
It never hurts to ask for what you want. One way to keep some cold, hard cash in your pocket is to ask your lender if it has any incentive programs. Some lenders offer a cash-back credit just for using their services.
2. Obtain several quotes
Don’t settle on the first quote you receive. A better deal is surely waiting for you. Your best bet is to get an estimate from at least three different lenders.
3. Don’t forget to negotiate variable costs
Loan origination and third-party fees can sometimes be negotiated. Take a close look at your good faith estimate and ask your lender to not only explain the fees but also if they would be willing to lower some of them.
“The good faith estimate comes in the form of an itemized list of estimated closing costs for everything from the lender’s fees to the appraisal charge, to the title insurance premium, to a partial month’s interest payment. The lender or broker charges some fees, and third parties charge others. The first step is to find out which are loan origination fees and which are third-party fees. Don’t guess. Ask the lender or broker,” Bankrate advises.
Make sure to pay attention to the numerical codes listed on the estimate. Bankrate says this will be your guide when it comes to figuring out which fees you can negotiate.
“On the good faith estimate, fees are categorized by numerical codes ranging from the 800s to the 1300s. Most of the negotiable lender-charged fees are in the 800s: application, origination, commitment, loan discount, broker, tax-related service and underwriting fees.”