Can closing costs be waived? Are closing costs negotiable?
When a property is sold, the transaction is finalized at a meeting between the buyer and seller. This meeting is called the “closing.” Although some closings can take place virtually or by digitally signing documents, most closings take place in-person at the office of a title company or real estate attorney selected by the homebuyer.
In general, most closing costs cannot be waived. Both the buyer and the seller can expect to pay fees at the closing. However, there may be ways to get the fees reduced or even waived when purchasing a home.
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Read on to learn more about how to get closing costs waived and how to avoid closing costs when buying a house.
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What are closing costs on a house?
Closing costs are fees buyers and sellers pay when finalizing the sale and purchase of a property.
Each party in the transaction will have different costs based on the parts of the transaction they are responsible for. Negotiating closing costs may be possible if the service provider (such as the title company) is willing to reduce their fees.
How much are closing costs?
On average, closing costs are approximately 2% to 5% the purchase price of the property. California has some of the highest closing costs in the country, which is why homebuyers are asking how to get closing costs waived.
The buyer’s closing costs may be under 5%, while the seller’s closing costs are often higher than 5%. This is because the seller pays the real estate agent’s commission at closing (if an agent was hired by the seller to list the property). If you are like most buyers, you are probably interested in how to get closing costs waived and how to lower closing costs.
Which fees are negotiable?
Negotiating closing costs, particularly the buyer’s costs, may be possible. Here is a list of fees that are often negotiable for buyers and sellers:
- Homeowners insurance. Prior to closing, the buyer will need to secure a homeowners insurance policy, which is something all mortgage lenders require as a condition of lending. If you are buying a home, you can price shop to get the best rate.
- Rate lock fee. Mortgage interest rates often fluctuate, and the rate you were offered when you began shopping for a home could rise by the time the closing day arrives. For this reason, buyers may want to lock in a lower interest rate. The lender will charge a rate lock fee in the form of points (also known as discount points). One point equals 1% of the mortgage amount. On a $250,000 mortgage, one point costs $2,500.
- Loan application fee. Most lenders charge a fee to review the buyer’s mortgage loan application. Many lenders will waive this fee, especially if the applicant has a transaction history with the lender.
- Origination and underwriting fee. These are fees that lenders charge for the work at the start of the mortgage loan process as they review the documents submitted by the buyer/borrower. Some lenders will waive or reduce this fee. CU SoCal charges just one low flat fee.
- Real estate agent commission. In most cases, the seller pays commission to the real estate agent that they used to list the home for sale. If another agent assisted the buyer, then the agents will split the commission.
- Title insurance. The title is a document showing the ownership of the property. According to the California Department of Insurance, title insurance is a contractual obligation that protects against losses that occur when the title to a property is not free and clear of defects (e.g., liens, encumbrances, and defects that were unknown when the title policy was issued). The person who pays for the policy selects the title insurance company. The buyer may shop for the title company they prefer, and the cost of the title service may vary.
Which fees are non-negotiable?
Generally, most of the fees associated with closing are not negotiable because they are fixed fees charged by the state, county or local government, the title company, real estate agent, closing attorney, and other parties that assist in the execution of the transaction.
Home seller closing costs tend to be fixed with no wiggle-room for negotiation. For example, they will have established a commission rate with their real estate agent and a fee for their attorney if they choose to use one.
Non-negotiable fees include:
- Government fees. Fees charged by the county and state (such as document recording fees and titles transfer fee) are fixed and not negotiable.
- Stamp and tax service fees. These two types of taxes are unrelated. The state of California doesn’t charge a stamp tax, but it does charge a real estate “transfer tax,” which is paid by the seller at closing. A tax service fee may be charged by the lender to cover risk of tax non-payment by the buyer.
- Appraisal fee. The buyer typically hires an appraiser to assess and provide the market value of the house. This figure is used by the mortgage company to ensure the home is valued accurately compared to the mortgage loan being given. An appraiser charges a fixed fee for their service.
- Credit check fees. Lenders charge the buyer/borrower a fixed fee for performing a credit check of the buyer’s credit score and credit history.
- Courier fees. These are fees charged by the title company or real estate attorney for the conveyance of documents by a third-party courier and are not negotiable.
- Property taxes. These taxes are set by the municipality and county in which the property is located and are not negotiable.
Can closing costs be waived?
Homebuyers and sellers always want to know how to get closing costs waived.
In general, closing costs are not waived. How to lower closing costs is another common question. It may be easier to get some costs lowered than waived.
The best thing to do is be prepared. Start saving for closing costs if you know you will want to purchase a home.
How to lower your closing costs
Here are some options homebuyers may investigate to lower closing costs or avoid closing costs when buying a house:
- Seller concessions. Buyers can ask to have the sellers cover a portion of the costs (known as seller concessions). Seller concessions were more popular in past years when the housing market was sluggish, and sellers offered concessions to entice buyers to purchase a home.
- Shop different lenders. When you talk to lenders ask what their loan-related fees are and which fees they would waive.
- Review closing cost fees. Compare the fees after you’ve shopped around. Remember, trust is important than fees. Be sure to choose a lender who answers your questions, returns your calls, and appears trustworthy. These qualities are more valuable than saving a few dollars.
- Grants and loans. There are sometimes financial assistance and other programs that provide a grant or other form of funds to qualified homebuyers. If you are a first-time buyer or have a low income, you may qualify. Be sure to ask each lender when you’re shopping for a mortgage.
- Discounts and rebates. Some lenders offer promotions such as discounts and rebates to attract home shoppers looking for a mortgage. Don’t be afraid to ask lenders if they have any current promotions.
- Consider no-closing-cost mortgages. Some lenders will offer mortgage programs with “no closing costs.” Be aware that even though you won’t pay fees at the closing table, there may be funding fees added or “rolled into” the mortgage loan amount.
- Close at the end of the month. Buyers can benefit by closing at the end of the month. Doing so means you’ll pay less days of per diem interest on the mortgage loan and prorated homeowners insurance, compared to closing in the middle of the month. Most new policy payments start on the first of the month.
When are closing costs paid?
The buyer may pay some of the mortgage fees early in the mortgage approval process (such as the home appraisal). Most closing costs are paid by the buyer and seller on closing day.
Who pays for closing costs?
As we’ve mentioned earlier, there are costs that are uniquely for the buyer to pay (such as title insurance and mortgage insurance if a mortgage is used to make the purchase). There are also costs that the seller traditionally pays (such as commission due to the real estate agent).
Can closing costs be included in a mortgage?
Yes, closing costs can be “rolled into” the mortgage loan amount. If you are a homebuyer looking at how to lower closing costs, you may choose to roll the costs into your loan amount if you do not have enough money saved to pay for the closing costs at the closing table.
If you choose this option, your closing costs will become part of your total mortgage loan amount. The downside is that you’ll be paying interest on these fees, so you’ll pay more in the long run. Your lender will let you know which closing costs can be included in the mortgage and which cannot.
Most FHA loans for single-family mortgages require that borrowers pay an upfront mortgage insurance premium (MIP). This premium, currently at 1.75% of the mortgage amount, can be rolled into the mortgage amount.
Read more about rolling closing costs into a mortgage.
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Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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