Which Closing Costs Are Negotiable?

The fees your lender charges for its own work are the most negotiable closing costs: origination, application, underwriting, and processing fees, plus any discount points you choose to pay. You can also shop for the services your Loan Estimate lists under "Services You Can Shop For," such as title services and the settlement agent. Government charges (transfer taxes and recording fees) are fixed, and third-party fees the lender orders, such as the appraisal and credit report, are hard to negotiate. The CFPB notes you can negotiate until you sign, but the lender or seller can refuse.

Which closing costs can you negotiate or shop for?

Your Loan Estimate, the form a lender must send within 3 business days of your application, groups closing costs into lettered sections. Each section has a different answer.

What is included in closing costs explains every section and when each cost is due.

How do you negotiate lender fees?

Lender fees sit in Section A, and the CFPB says they are usually easier to negotiate than third-party fees. What lender and origination fees include defines each charge. To negotiate them:

1. Get Loan Estimates from several lenders or brokers. Credit scoring models generally count mortgage credit checks made within 14 to 45 days of each other as a single inquiry, with the window set by the model. Getting all your quotes within 14 days keeps the score effect the same whether you ask two lenders or five.
2. Ask for the same loan from each. Request the same loan type, amount, and term, and the same number of points or credits, so the numbers line up.
3. Compare Sections A and B. The CFPB suggests focusing on these, because you can shop for Section C services no matter which lender you pick. Section D shows total loan costs.
4. Ask for a reason behind every Section A fee. The CFPB's example: if a lender charges both an underwriting fee and a processing fee, ask what each covers. You may find one that can be waived or reduced.
5. Ask your preferred lender to lower its fees to match a cheaper quote. It can say no, so keep the other offers open until you decide.
6. Get the change in writing, then check your Closing Disclosure. You must receive the Closing Disclosure at least 3 business days before closing. Compare it line by line with your Loan Estimate.

Once a lender issues a Loan Estimate, federal rules bar it from raising its own fees or the Section B charges at closing, except for specific reasons such as a change you request or new information about you or the property. If your rate was not locked when the Loan Estimate was issued, points and lender credits can change when you lock it. A lower fee can still be agreed after the Loan Estimate.

Should you pay points or take lender credits?

Points and lender credits are the main rate-for-fees trade you control. One point costs 1% of the loan amount and lowers your rate. Lender credits work the other way: the lender pays part of your closing costs, and you take a higher rate. How much each point moves the rate varies by lender, loan type, and market.

The CFPB's example on a $180,000, 30-year fixed loan with a 5.0% rate at zero points: paying 0.375 points ($675) drops the rate to 4.875% and saves about $14 a month. The lower payment alone takes about 48 months ($675 / $14) to repay the $675. The lower rate also pays your balance down slightly faster, and counting both, this example breaks even after about 37 months. If you expect to sell or refinance sooner than that, the points cost more than they save.

Ask each lender to quote the same loan with and without points and credits, and compare the totals over the years you expect to keep the loan. How interest rates differ from APRs explains a second way to compare offers that mix rates and fees.

How do you shop for title and settlement services?

With the Loan Estimate, the lender must give you a separate written list of providers for each Section C service, and the list must say you can choose a different provider, subject to the lender's reasonable requirements. The CFPB cites research that borrowers who shop could save as much as $500 on title services alone. It also warns that the lender's recommended providers are often its affiliates (related companies), which gives the lender a financial reason to recommend them.

Your choice also changes how much those charges can rise before closing:

When you compare title quotes, compare the bottom-line total, not individual line items. In some states the premium itself is fixed. In Texas, for example, the Texas Department of Insurance sets title insurance rates, so every title company charges the same premium for a policy. Escrow and closing fees still differ between Texas title agents, so those are the part to shop.

How else can you keep closing costs low?

Beyond lender fees and Section C services, these steps lower what you pay at closing:

• Shop for homeowners insurance. Your homeowners insurance premium is part of Section F, and you choose the insurer. Compare quotes for the same coverage before you buy a policy.
• Ask the seller for a credit. A seller credit is money the seller agrees, in the purchase contract, to put toward your closing costs. The CFPB notes that a seller credit usually comes with a higher purchase price. Loan programs limit how much the seller can pay, and the limits differ by loan type. Who pays closing costs on a house lists them and how a credit can affect your loan amount.
• Negotiate who pays transfer taxes. The tax amount is set by the state or county, but depending on your contract or state law, the seller may pay some of it.
• Pick a closing date late in the month. Prepaid interest covers the days from closing to the start of the period your first payment covers, so the lender charges it per day. On a $360,000 loan at 6.5%, daily interest is about $64.11 ($360,000 x 6.5% / 365). Closing on October 6 means 26 days, or about $1,667. Closing on October 28 means 4 days, or about $256. This lowers the cash you bring to closing; it does not change your rate. The seller has to agree to the date in the contract.
• Question any fee you do not recognize on the Closing Disclosure. Ask the lender or settlement agent what it is for and how the provider was chosen.

After closing, a loan servicer collects your payments and runs your escrow account. What loan servicing is explains what that company does.