One of my biggest financial mistake other than not using a financial calculator was not negotiating the fees from my mortgage lender, Equitable Trust Mortgage.
Although I knew it was possible to negotiate, I felt pressure from the sellers to close the sale within two weeks, which by all accounts is very difficult to do. Since my only benchmark at the time were the closing costs associated with a loan from LendingTree — and Equitable Trust’s closing costs were significantly lower ($500 versus $995) — I had little reason to think about shopping around. Using a financial calculator I could have better weighed my options.
On both my first and second mortgages, the document prep fee to my lender, Equitable Trust, was in the $250 range. In hindsight, I’ll bet I could have negotiated this downward. There’s no reason why the preparation for my second mortgage would take as much time as the first one. It’s sort of like a quantity discount, and it could have resulted in $100 or more in savings.
As for the two mortgage rates themselves — 5.75% and 7.5% — I’d wager they could’ve been negotiated lower as well. At the time, I was hamstrung by the sellers’ two-week closing demands, so I didn’t feel I had much to negotiate with, especially when the lender knew my imposed time limit. Although Equitable Trust’s closing cost was low, it could have been a few hundred dollars lower had I taken the time to negotiate.
In his story, our reader avoided negotiating his mortgage closing costs — which, whether because of seller intimidation, trust, or simple hesitancy — is more common that you might think. Especially if you’re short on time, it’s easy to overlook such a straightforward way to save some money.
When you apply for a mortgage loan, the lender or broker is required to provide you with a “good faith estimate” or (GFE), within three working days of accepting your loan application.
The GFE is provided to you in the form of an itemized list of estimated closing costs. These costs generally fall into two categories: lender / broker fees, and third-party and government fees.
Lender / broker fees are all negotiable. They can include items such as application fees, loan processing fees and administration fees. You should get as many of them waived or reduced as possible.
Watch out for third-party fees, too: they’re generally fees the lender has to pay to close your mortgage deal. Although many of these fees are set prices, if it feels like you’re being price-gouged, don’t hesitate to ask for clarification on a fee or research the standard rate for your loan size.
Even if the fee is a third-party fee, there may be ways to reduce it. Take itemized number 1108, title insurance, as an example. This is usually in the range of about $500. You can also choose your own title insurance company, and if you shop around, you can easily save hundreds of dollars.
In fact, you may be able to save up to 40% if the seller hasn’t owned the home you’re buying for more than 10 years. The title company may be willing to give you a re-issue rate, thereby saving you up to $200.
The moral of the story is that you should always make an attempt to negotiate and you should never feel as though you have to go with any particular lender. It can be easy to overlook these closing costs when you’re spending a few hundred thousand on a home, but these fees are coming straight out of your wallet.
When you plan ahead and acquire good-faith estimates from perspective lenders, you can better compare and contrast the individual itemized closing costs between the lenders. Remember, mortgage shopping may be time consuming; but for important financial decisions like these, it’s always best to take extra care!
- Prep work can head off closing-fee surprises – USA Today.
Train Wreck Tuesdays are a weekly post of horrible financial mistakes. They are posted anonymously. Submit your story; if you’re selected, you get a free personal finance book. The best comment gets the same prize!