4 costly and unnecessary closing fees you can avoid
For a first-time home buyer, purchasing a home is both very exciting and stressful. Getting a reality check on what you can afford is typically the initial shock. But after you get through those first stages and find a home that works for you, it's time to begin the closing process.
Closing fees and related expenses
There are many fees attached to a closing; some disclosed, others hidden within the Good Faith Estimate when buying a home. This is a form provided by the bank within three days of processing the loan application. For a buyer who doesn't know any better, these fees are just numbers on a paper that need to be paid. However with a little research the first-time home buyer can avoid paying full value on many of the fees -- and save big.
First, you need to understand which fees are negotiable. The Good Faith Estimate can be overwhelming to someone who is not in the business, and this is something the lenders count on. Items such as the home inspection, taxes, insurance, appraisal, origination and attorney's fees are not negotiable. These are real fees associated with any closing. Also, if your credit is less than perfect you will need to buy points in order to reduce your interest rate and this can really add up.
Avoid these fees or at least lower them
The area of concern and where all the junk fees are usually inserted is the section of the Good Faith Estimate containing the numbers ranging from 800 through the 900s. Here are a few fees that can be reduced or even eliminated at a closing:
- Title search -- A title search is a requirement of the bank and the homeowner. The bank will have their own title service they use, but if you are able to find your own title company for less, that would be acceptable.
- Application fee -- This is essentially the same fee as a loan origination fee and should be removed. This fee is set in place for borrowers who are less than serious about buying a home. Once you are approved for a loan the bank should remove this fee from the Good faith Estimate.
- Document preparation fee -- Just another fee the bank adds in for the uneducated borrower. Most times the bank does not even prepare the documents, but rather an escrow agent does and they have a fee already in place.
- Document review fee -- This is a fee the bank charges for the review of the documents once the closing is over. Most times the documents just get filed, so this fee is definitely something you want to have removed.
There are many more fees to pay attention to and for the most part they are contained within the numbers ranging between 800 and 900. If you are purchasing a home, you can also have as part of the contract between buyer and seller state that the seller pay all closing costs. While this does not include the bank's fees, it can eliminate thousands for you at the closing table.