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10 Proven Strategies to Lower Your Closing Costs
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# 10 Proven Strategies to Lower Your Closing Costs

By

Aja McClanahan is an a personal finance writer whose 10-year-long financial writing career first took off after paying off over $120,000 in debt. Her story has been featured in Yahoo! Finance, Kiplinger, MarketWatch and others. Aja’s passion for personal finance comes from her desire to break down financial topics in plain, easy-to-understand language for the masses.

Published September 06, 2024

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Close

For most people, buying a home is one of the most significant financial commitments they’ll make in their lifetime. The price tag of a home is high, but you can’t forget all the other expenses related to the home-buying process, like closing costs, which can add up quickly.

Although these extra fees may feel excessive, keep in mind that you have the option to negotiate or even eliminate them. With some basic research and negotiating skills, you could save a great deal of money. In this guide, we’ll go over which closing costs may be negotiable, along with other tips on how to save money at the closing table.

### Key Takeaways

- Closing costs, typically equal to 1%-5% of the home’s purchase price, are the extra fees due at closing for various services related to purchasing a property.
- These costs may include lender fees, agent commissions, taxes, insurance premiums, and title company services.
- Not all closing costs are set in stone, meaning you may have the opportunity to negotiate them down or totally eliminate them.
- By law, closing costs must be disclosed in advance to buyers and sellers and agreed upon before a real estate transaction can be completed.

## Understanding Closing Costs

Closing costs are fees that various vendors charge homebuyers during the course of a real estate transaction, which are due when the transaction closes or settles. (Sellers have closing costs, too, but this guide focuses on buyers’ closing costs.)

Generally, cash transactions will have fewer closing costs, whereas transactions involving a mortgage will have more fees due to lender requirements.

Here are a list of standard closing costs you could see on your closing settlement statement:

- Appraisal fees
- Settlement fees
- Survey fee
- Recording fees
- Discount points
- Real estate agent commissions and transaction fees
- Title insurance
- Loan origination and application fees
- Flood insurance
- Mortgage Electronic Registration System (MERS) fee
- Escrow fee
- Title company and lawyer fees
- Prepaid expenses such as property taxes, HOA assessments, homeowners insurance, and interest until your first payment is due

By law, the lender who underwrites your mortgage loan must give you a closing disclosure form explaining all closing costs at least three business days before you close the home purchase and loan.

## Strategies for Negotiating Closing Costs

Some closing costs are fixed by law; others are negotiable. Here’s how to get the best deals.

### 1. Comparison Shop

One of the easiest ways to negotiate closing costs is to shop around for different rates and prices.

Lender

Starting with your lender, you should shop your rates with multiple lenders and use the quotes, also known as loan estimates (LE), as a basis for negotiation. For each lender, you should also ask if there's room to reduce any fees associated with your loan.

Title Services

How you evaluate title insurance and related title services will depend mainly on the state where you are buying a home. For instance, states like Florida and Texas have laws regulating the prices of title insurance, which are the same across different vendors.

If you're financing your home purchase, your lender will require you to purchase a lender's title insurance, which protects the bank's interest in your home in case any title issues arise. You may also buy an optional owner's title insurance policy, which protects you if someone else claims to own the property you just purchased. The responsibility for paying for the owner's policy depends on local laws where you are purchasing. Some title companies will offer a discount when you buy both.

In other states, title insurance may come with other services like the title search or conducting the closing itself. In this case, you'd have to shop around for different title service providers, known as title agents. However, the ability to choose a title agent is based on your purchase contract.

Homeowners Insurance

You should get a written estimate from two or more insurance providers, then ask each one to beat the other. Sometimes, working with an insurance broker can expedite the process of getting multiple quotes.

Ask if there are discounts for bundling your insurance, for instance, with your auto, life, or other types of coverage. Inquire about additional discounts for alarm systems, storm shutters, or other risk-mitigating features.

### 2. Identify Negotiable Fees

Some closing costs are set in stone, but you may be able to negotiate other costs. Here are the most common costs that you can negotiate (or shop around for):

- Real estate agent and broker fees
- Discount points
- Loan origination and application fees
- Some lawyer services

If you want an exact list of closing items you can and cannot negotiate, you can take a look at your lender’s loan estimate (LE), where costs are broken out into two categories:

- Services you can shop for
- Services you cannot shop for

### Tip

The Consumer Financial Protection Bureau has an example loan estimate template you can refer to give you an idea of where to find this information on your LEs from your lenders.

### 3. Request Fee Reductions

The bulk of your fees will likely come from your lender. So, requesting fee reductions here could be a great use of your time.

For instance, some lenders will reduce or eliminate their origination and application fees, and they may even cover the appraisal cost for you. Although your loan's interest rate is not technically a closing cost, you should use this opportunity to negotiate a lower interest rate.

Some items you may want to negotiate with your lender include:

- No-closing-cost mortgage: Ask if your lender will roll closing costs into your loan.
- Appraisal: Some lenders will cover this or any fees to expedite it.
- Origination and application fees: Ask for discounts or a total elimination of these fees.
- Lender credits: This is a rebate to offset closing costs.
- Interest rate: Request multiple quotes for a lower interest rate.

If you negotiate origination fees, application fees, or lender credits, make sure you ask how this could impact other loan terms, like your interest rate or closing costs. Sometimes, a lender will reduce or eliminate closing costs and other fees, but you need to be sure how these adjustments will affect your final loan terms.

Additionally, you can ask your real estate agent if they can reduce their fees. Real estate commission rates are not regulated by any law, so this is a great opportunity to save money at closing.

Ask your agent to disclose all of their fees in writing. Most agents will have this information available in the form of a buyer's agreement. Negotiating these fees is a good idea, though some agents may resist your efforts. You may have more leverage in situations where the agent is also representing you on the sale of a property, a high-dollar transaction, or you will soon be referring other clients to the agent.

### 4. Use Accusation Audit and No-Oriented Questions

Feeling stalled in your negotiations? Look for the black swans. That's what Chris Voss, a former FBI hostage negotiator and now the CEO of The Black Swan Group, calls the hidden pieces of information that can help bring negotiating partners together.

Using the Black Swan negotiation method means you work to know "critical unknowns," which are the other side's hidden needs or concerns. Voss's techniques include:

- Accusation Audit: Proactively address negative perceptions and ease tension. You'll bring up concerns you think the other party has first, then address and hopefully diffuse them.
- No-Oriented Questions: Give the other party a sense of control by allowing them the opportunity to say no. This can unconsciously reaffirm their commitment to moving forward (as opposed to an insincere "yes" with no real commitment).

These strategies aim to alter the tone and direction of dialogue so you remain in the driver's seat during negotiations.

A potential conversation with a lender may start like this, "I know you're used to giving discounts to repeat customers or someone who can refer loads of business to you. I realize I'm not that person—yet. But I could be if we close this deal with better terms!"

If you aren't getting any traction or feedback, you might follow up with, "Hi, Mr. Lender. I never heard back from you on that rate reduction. Have you given up on closing this deal with me?"

### 5. Consider a No-Closing-Cost Option

You can roll your closing costs into your mortgage with a no-closing cost loan. Rolling your closing costs into your mortgage essentially means incorporating these fees into your loan amount instead of paying them upfront.

Typically, no-closing-costs loans increase the principal amount of the mortgage, increasing the total amount of your loan and monthly payments. It also means that you’ll pay more interest over the life of the loan—which could exceed the amount of cash you would have paid at closing.

### 6. Work With the Seller

If a seller is very motivated, they may be willing to help a buyer cover closing costs from their sale proceeds. Depending on the type of loan you are using to purchase your home, there are limits to how much they can contribute.

Though it’s not always the case, a seller may increase the price of the home if they agree to cover some closing costs. There’s no guarantee it will go in your favor, but you can always try to negotiate to keep the purchase price within your desired range.

### 7. Close at the End of the Month

When you close towards the end of the month, you reduce the number of days of per diem interest on your loan from the closing date to the first of the following month. Closing at the end of the month can result in savings because you only pay interest for the few days left instead of a whole month's worth.

### 8. Ask About Rebates

Some lenders offer incentives or discounts. Lender rebates for mortgages, also known as yield spread premiums or lender credits, means the lender offers a credit to offset closing costs in exchange for a higher interest rate on the mortgage. Going this route can eliminate or cover some fees that would customarily be part of your closing costs.

### 9. Look for Grants and No-Down-Payment Programs

You can reduce your closing costs by using a homebuyer grant or loan program that doesn’t require a down payment. These programs can be offered by financial institutions or nonprofit organizations that offer assistance to first-time homebuyers, low-income households, or both.

Bank of America, U.S. Bank, Chase, and other private financial institutions have similar home-buying assistance programs. You can check this list of homebuyer assistance programs offered at city, state, local, and federal levels.

### 10. Be Alert on Closing Day

Once you’re happy with the terms of your deal, make sure to have documentation to back up your final agreements in case there’s confusion on closing day. If there’s an issue with a line item on your settlement statement, you’ll want to communicate it with the title agent, sending your documentation along to verify.

Closing a real estate transaction has several moving parts and involves many parties. It’s not uncommon for closing agents to miss details and exact amounts for various line items. Review your closing disclosure to ensure it matches the negotiated terms of your loan. Alert all parties involved and the title company of any discrepancies so that changes are made in time for closing.

## Prepare for Negotiation

Dave Forehand is a real estate agent and owner of Team Forehand Realty, a brokerage based in the Greater Green Bay, WI area. He emphasizes the importance of preparation to negotiate successfully, "There's a lot involved with buying a home, and things can get confusing. So we tell all our clients to be organized and prepared."

He adds, "Gather all the essential documents like your credit report, loan estimates from multiple lenders, and a detailed breakdown of all expected closing costs. Make sure you clearly understand your financial situation, including your credit score, income, debts, and savings, as these will impact your negotiation leverage."

Recommended documents:

- Income tax returns and W-2 from the last two years
- Proof of other income, such as child support, alimony, or rental income
- Recent pay stubs
- Recent bank statements
- Credit report
- A government-issued ID, such as a driver's license or passport, to confirm your identity.

You should also be prepared to present loan estimates, quotes, and contract drafts from all vendors for comparison. For instance, get multiple loan estimates so you can use them in your negotiation process.

### Consider the Market

Another way to prepare for negotiation is to be mindful of the prevailing real estate market. Available housing inventory, interest rates, and other macroeconomic factors can determine whether you are negotiating in a buyer's or seller's market.

In a buyer's market, where buyers have the upper hand, you can typically negotiate with vendors and sellers to get better deals, versus a seller's market, where sellers tend to call most of the shots. Regardless of market conditions, you should work with an experienced real estate agent who can negotiate with sellers in your favor without killing your deal.

As of this writing, we find ourselves in a unique situation where the housing supply is still low, yet interest rates are very high. According to Joe Salerno, co-founder at Yardsworth, a real estate fintech company, sellers are still in control, but lenders need to close more deals.

He says, "The good thing here is this strategy is primarily a negotiation with the bank vs. with the seller—and lenders today, in this high-interest-rate market, have nothing but time on their hands. So capitalize on their boredom and negotiate the best loan you can."

Getting ready to buy your first home? We’ve created a guide to walk you through each step so you can make smart financial decisions in an unprecedented market. Check out “ Owning It: How To Buy a House“ to learn more.

## Potential Challenges and Solutions

There are many challenges that a homebuyer can face when negotiating closing costs—especially if they are not as experienced and don’t fully understand the buying process. Although it’s tempting to try to negotiate every single term to their liking, another issue is the time constraint, with typical closing timelines around 30-60 days after the purchase contract is finalized.

This means you may not have the time or energy to chase the best terms on every aspect of your transaction. If this brings you to a standstill on some issues, it’s important to take stock of what’s important and what matters are truly nonstarters for your home purchase.

Start with the end in mind to empower you in the negotiation process. Set your budget for items like purchase price, monthly mortgage payment, and total cost of ownership for the life of the loan. Starting with this “grand scheme of things” outlook will help you stay within those parameters, though the various terms of your transaction could change.

## What Are the Typical Closing Costs When Buying a Home?

Closing costs may include various bank fees, agent commissions, taxes, insurance premiums, and title company services.

## How Can I Ensure That Negotiated Changes Are Reflected in the Final Closing Disclosure?

Review your closing disclosure to ensure it matches your loan estimate's negotiated terms. Alert all parties involved and the title company of any discrepancies so that changes are made in time for closing.

## Is It OK To Ask the Seller To Pay Closing Costs?

Yes, you may ask sellers to cover some closing costs. Depending on your loan type, there may be limits to how much they can contribute. In exchange for this concession, a seller may raise the home's purchase price, though it's not always the case.

## The Bottom Line

Keys to successfully negotiating closing costs include:

- Preparation
- Research
- Knowing your non-negotiables and the position of strength you have
- Understanding the market
- Taking time to understand the buying process and closing costs
- A willingness to negotiate with your lender, real estate agent, seller, and others in the buying process

Remember to remain open and flexible if you don’t get everything on your wishlist. Negotiate as much as possible and be discerning about how far you can go without blowing up the deal.

Consider the long-term benefits of homeownership as the ultimate goal. With this attitude, you can still win—whether at the closing table or years from now when your property has appreciated, and you’ve built some equity in your home.

Article Sources

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Related Terms

An FHA Single Family Title II is a type of mortgage issued by the FHA under Title II of the National Housing Act for a single family.

A conditional offer is an agreement between a buyer and a seller that an offer will be made if a certain condition is met.

A contingency clause is a contract provision that requires a specific event or action to take place in order for the contract to be considered valid.

A bidding war is a situation in which potential buyers of a property vie for ownership via a series of increasing price bids.

A home equity agreement is a contract between a homeowner and an investor. The investor provides funds to the homeowner, who agrees to pay the money back and share any appreciation in the home's value.

Shared equity finance agreements occur when two parties purchase a primary residence because one party is unable to purchase the residence on its own.

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