When your lender hands you your good faith estimate, it is easy to be overwhelmed by all the fees and costs. How do you know which fees are mandatory and which ones you can negotiate?
It really all depends on the lender. Before you sign on the dotted line it is important to get an idea of the fees and costs you are dealing with.
Mandatory fees
These types of fees are usually imposed to the lender by third parties. Therefore, they are usually non-negotiable.
Amongst these fees are:
- Credit check fee: This is charged from the lender verifying your credit history.
- Appraisal fee: In order to check that your home is worth the price you will paying, the lender will need to appraise it. Make sure to ask for a breakdown of this fee if it seems too high.
- Title insurance fee: This is an insurance policy that protects the lender and buyer if any issues arise during the title transaction.
- Courier fees: These are fees included during the documentation preparation process.
- Government fees: These are fees associated with transfer of the deed.
Negotiable fees
Fees that are charged directly by the lender give you a little bit more room for adjustments. That is not to say that these fees aren’t reasonable, but they serve as an opportunity for negotiation.
- Loan origination fee: This is the fee the lender charges for processing your application. This fee is usually a percentage of the loan total.
- Underwriting and commitment fees: Included in these fees is the cost of the lender doing business.
- Discount points: These fees are also expressed as a percentage amount, similar to the loan origination fee. A “point” is equal to one percent of the loan. Each point paid at closing time reduces the interest rate on your loan. The rate that it is reduced by is usually a pre-determined amount.
Another expense to watch out for are any pre-paid portions of your property taxes and insurance that are put into your escrow account.
For more information on adding up closing costs, visit our closing costs calculator which you can find in the bottom right hand corner of our website.
