Actually, a better way to ask the question — and to find an acceptable answer about lowering closing costs — may be to ask what fees are non-negotiable.
In most areas, there are only a few “set in stone” fees that automatically appear in either the buyer’s or the seller’s column.
What Fees Must Be Paid?
Closing costs vary from state to state, and numerous common fees are normally split between buyer and seller. In general, however, required fees include the costs to record deeds, documents and loan papers that transfer a property into your name and specify your legal obligations to a lender. A documentation fee is standard. Appraisal charges also go to the buyer, and you are entitled to a copy of the written appraisal.
Fees are confusing and it pays to do some upfront investigation when you first consider buying property, because rules are subject to change. Loan application charges, credit report fees, survey charges, home inspection reports, various transfer taxes and facility inspection fees (such as a septic inspection or water well report), points, interest rate buy downs and attorney’s fees — many, if not all, are variable and negotiable, within certain limits, in most states.
Normal “prepaids” at closing are not negotiable: These may include title insurance, required escrow minimums and pro-rated expenses based on the date of closing. Fees that pertain to your mortgage loan vary from one lender to another and can depend on the type of loan you seek and/or your credit rating. With new disclosure rules becoming effective August 1, your Loan Estimate will specify which charges you might be able to “shop” in order to get a better deal.
FHA loans carry a 6% limitation on fees that can be paid by the seller on your behalf; some states regulate fees for both buyer and seller. Kentucky, notably, requires the seller to pay closing costs. Market conditions might also affect the fee split between buyers and sellers. Your best course of action is to shop for the most advantageous mortgage rates, get prequalified for your loan, and rely on the advice of your real estate broker to negotiate the most advantageous contract terms possible.