Buying a home is not a common occurrence. In many cases, it may be difficult for a buyer to understand the total cost of the home—not just the mortgage but also the closing costs. Most of the expenses other than the mortgage are known as closing costs, and among these closing costs are lender fees charged by lenders to process and fund your loan. At Pulgini & Norton, our Boston real estate attorneys may be able to help you understand the total cost of the home and whether there are ways to save money or negotiate to pay fewer fees.
Lender Fees"Closing costs" refer to the many different expenses associated with financing and buying a home. The expenses may be recurring or non-recurring. The former are paid on a monthly basis even after the closing and include real estate taxes, homeowners' insurance, and private mortgage insurance if you are putting under 20% down. The expenses are put into escrow so that they are available to cover the following year, and in some cases, you also need to prepay interest.
Non-recurring costs are paid at the closing as well and may include lender fees. Lender fees include application fees, recording fees, attorneys’ fees, and other expenses tacked onto the closing costs. For example, there may be an origination fee, an appraisal fee, a tax service fee, an underwriting fee, a document preparation fee, and office administration fees. There will be other fees as well. For example, if you are working with a mortgage broker, there is a broker's service fee. The fees are different depending on the lender, where your home is located, and its price.
Sometimes junk fees are also tacked onto mortgages as part of the lender fees. There may be, for example, an excessive application fee, underwriting fee, or loan processing fee. There may be too high a broker rebate. You may ask about the fees to see whether they can be negotiated if they seem high. However, in most cases, it helps to consult an attorney about the mortgage, both in connection with lender fees and in connection with the terms of the mortgage and your ability to meet your obligations under it.
In some cases, a lender offers an option of paying a flat rate that is supposed to include all of the closing costs. This removes negotiation and the issue of trying to determine whether a lender fee is fair from the process.
If you cannot negotiate some of the closing costs down, you may be able to ask the seller to pay the closing costs, but how this is phrased may make a big difference. Many sellers may feel that asking for closing costs is simply asking them to reduce the price of the home by thousands of dollars (the amount of the nonrecurring closing costs).
In many cases, however, the buyer is simply unable to come up with enough money for the closing costs to be competitive with other potential buyers. One strategy for these buyers is to get a cash credit at the closing from the seller so that they can pay the non-recurring fees, such as lender fees.
There are restrictions on how much a seller may credit to the buyer at the closing, and each lender has its own restrictions, usually somewhere in the ballpark of 3-6% of the purchase price. Also, the credit is usually only permitted for the non-recurring closing costs, such as loan origination fees. The credit may not exceed the actual amount of the closing costs.
As a buyer, you need to present your offer requesting a credit for the closing costs in the right way. In many cases, the seller will have some resistance to your request, so it may be helpful to obtain legal representation and assistance in how you frame your request and negotiate other elements of the transaction.
Consult a Skillful Real Estate Attorney in the Boston AreaAt Pulgini & Norton, our experienced Boston attorneys can advise you on lender fees, among other aspects of any property transaction. We can let you know about your options and develop a strategy in connection with your home and your mortgage. Our firm handles property transactions in Quincy, Weymouth, and Braintree, among other Massachusetts cities. For a consultation with a home financing lawyer, contact us online or call us at 781-843-2200.