In 2020, mortgage rates fell to record lows, and buyers had a prime opportunity to lock in long-term savings on their mortgages. These days, mortgage rates are much higher, which means buyers are more likely to find themselves financially strained given that home prices are also up.
As of mid-December, the average rate on a 30-year mortgage was 6.95%, according to Freddie Mac. And a rate like that has the potential to result in a pretty hefty mortgage payment.
If you’re looking to buy a home, there may not be all that much you can do to save money in the process. Sure, you could try talking the seller down to a lower price. But seeing as how housing inventory is low right now, sellers tend to have their fair share of buyers. And yours may not be willing to accept a number below their asking price.
Also, while coming in with a great credit score could result in a lower interest rate on your mortgage, it’s not going to land you a 30-year loan at 5.5% when the average rate is close to 7%. You could snag a lower mortgage rate by applying for a 15-year loan instead of a 30-year loan, but you may not be able to afford the higher payments that come with it.
That said, there is one step you can take to save some money when buying a home. You just need to go about it strategically.
Negotiate closing costs with your mortgage lender
When you sign a mortgage, you’re generally required to pay closing costs as part of the deal. Closing costs typically amount to 2% to 5% of your loan amount. And your mortgage lender will generally give you the option to pay those fees upfront when you close on your home, or to roll those fees into your mortgage and pay them off over time.
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But just as it’s possible to negotiate with a car dealer when you’re buying a vehicle or a contractor when you’re doing a kitchen renovation, so too is it possible to negotiate with a mortgage lender on closing costs. You just need to know which fees your lender has leeway with.
Fees that usually are not negotiable
Some of the fees your lender charges you at closing may not be fees it controls. Recording fees, for example, are usually set at the municipal level. So if it costs $45 where you live to enter your mortgage into public record, that’s a $45 fee your lender has to pass along to you because that’s simply the going rate.
Similarly, you’ll usually be on the hook for property taxes when you close on a mortgage. Property taxes are often paid quarterly or annually, so you’ll need to cover the bill (or partial bill) for your share of the year. But like recording fees, property taxes aren’t set by mortgage lenders, so the amount assigned to your property is the amount you’re looking at paying.
Fees that may be negotiable
Some of the fees associated with closing on your mortgage may be negotiable, however. Many lenders charge an application fee as part of the mortgage process. That’s a fee your lender may be able to lower or even waive.
Similarly, when you apply for a mortgage, you have to go through underwriting, which is the process of vetting your financial information. Lenders sometimes charge a separate fee for underwriting, but this is something you can seek to whittle down.
Finally, before you can close on your mortgage, the home you’re buying needs to undergo an appraisal. If your lender sets that up, you can expect to pay appraisal fees. However, your lender may be willing to let you get your own appraisal. And if so, you can research costs and try to find a cheaper alternative than your lender’s default option.
All told, buying a home is pretty expensive these days. But if you’re able to lower your closing costs by negotiating with your lender, you can squeeze out a small amount of savings for some much-needed breathing room.