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7 Ways To Reduce Your Closing Costs

You can reduce closing costs by shopping for the lowest lender fees, asking the seller to contribute and closing near the end of the month.

Bella Angelos
Dawnielle Robinson-Walker
Michelle Blackford
Updated
The bill for closing costs is the final hurdle between home buyers and their new homes, and it can represent a surprising chunk of money. Closing fees run between 2% and 6% of the mortgage; that's around $7,000 to $21,000 on a $350,000 loan. (Use this closing costs calculator to estimate fees on your purchase.)
Homebuyers will spend weeks hunting for the best mortgage rate, then sometimes accept closing costs with barely a second glance. That's a bit like negotiating the price of a car and then paying whatever the dealer charges for the keys. Cutting these closing costs even a little could help pay for a new couch or outfit the guest room.

1. Shop for the lowest lender fees

Most lenders charge an origination fee for processing the loan. Some charge a single flat fee, while others break it into different categories such as application, processing, underwriting and verification fees.
To find out how much those fees are, consult the Loan Estimate from your lender.
Did you know...
A Loan Estimate is a three-page form a lender must provide within three business days after applying for a mortgage. It spells out your loan terms, estimated monthly payment and closing costs.
You'll find all the closing costs itemized on page 2. The lender fees are under "A. Origination Charges." Don't get distracted by the fee names. Focus on the total amount.
It doesn't hurt to ask the lender to reduce the origination charges, but the best way to save money on fees is to apply with multiple lenders and choose the one with the lowest-cost offer.

2. Shop for services

Closing costs include expenses for other companies' services, some of which you can shop for to save money. These are listed in Section C, page 2 of the Loan Estimate: “Services You Can Shop For” and include:
  • Pest inspection fee.
  • Survey fee.
  • Title search, which investigates a property’s history for restrictions or liens.
  • Title insurance binder, which covers the buyer and seller during the transfer process.
  • Lender’s title policy, which protects a lender in case of a problem with the title.
  • Settlement agent fee, also called an escrow agent or closing agent, who represents the buyer and oversees the closing and legal transfer of title.
🤓 Nerdy Tip
Looking for the biggest savings opportunity among closing costs? Focus on title insurance and settlement services. These fees are often bundled together and tend to be among the most expensive charges you'll pay at closing. If you decide to shop around, act quickly. Title and settlement companies need time to research the property and prepare the necessary documents.
The companies your lender or real estate agent recommends might offer good deals. But get quotes from a few other companies to compare costs.
Comparison shopping among pest inspectors or surveyors might not uncover great price differences, but it doesn’t hurt to check.

3. Shop around for home insurance

You'll need home insurance to close the loan, and typically you'll prepay for coverage at closing. Rates for the same coverage can vary, so looking into different options is in your best interest.
Did you know...
A quick annual checkup on your coverage could put serious money back in your pocket. Just because you started with a certain rate doesn’t mean it’s still the best one available. Taking a few minutes to compare your options each year can pay off in a big way. In fact, two Nerds recently reviewed their mortgage coverage and ended up saving more than $2,000.
Compare home insurance quotes to find the best price.

4. Ask the seller to contribute

Depending on the market and the home, a seller might contribute money toward your closing costs, often called seller concessions. Sellers are more likely to offer concessions in a buyers market when homes are taking longer to sell or when they need to attract buyers.
In hot real estate markets where buyers compete aggressively, there may be little chance of getting a seller to help. Your real estate agent can guide you on whether to ask a seller to contribute and help you craft a negotiating strategy.

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5. Get closing-cost assistance

Some local and state agencies offer programs that can reduce your upfront costs when buying a home. These include first-time home buyer grants, down payment assistance and forgivable loans to help pay closing costs.
Eligibility usually depends on factors like income, location, and whether you're a first-time buyer. Your state housing finance agency can outline the requirements and connect you with participating lenders who offer these programs.
In addition, some banks and credit unions offer incentives and rebates to help with closing costs. When you're shopping for lenders, ask what special programs or down payment assistance they offer.
» MORE: First-time home buyer programs by state

6. Consider a no-closing cost mortgage

A no-closing cost mortgage can be helpful if you’re short on cash at the time of payment. However, the costs don't simply disappear. Instead, any closing costs you don’t pay upfront will be folded into the loan or covered through a higher interest rate, which will increase your monthly mortgage payments.
Be sure to weigh short-term savings against long-term costs. Paying less upfront can make buying a home more accessible today, but it may cost more over time in interest or monthly payments.

7. Sign loan papers near the end of the month

Among your closing costs is prepaid interest. This is the interest that accumulates between the date of the closing and the first of the month.
Closing later in the month can reduce this cost. With fewer days left in the month, you pay less prepaid interest at closing.
But there's a trade-off. Your first mortgage payment is typically due on the first of the month, 30 days from the closing. That means the timing of your closing can affect when your first payment comes due.
For example, closing on May 20 would push your first mortgage payment to July 1. If you close late in the month, you owe less in prepaid interest at closing. Remember though, this means you have fewer days before your first mortgage payment is due.
In the end it comes down to cash-flow. Do you want to pay less at closing and start payments sooner? Or would you rather pay more upfront and get more time before your first payment?
Ask your loan officer for guidance.

Some closing costs are fixed

You can't do anything to reduce some closing costs, such as taxes and government fees. But taking control of what you can can save you money. Compare offers from multiple lenders, shop for services like title insurance and home insurance, and look for closing cost assistance through first-time home buyer programs.
Meanwhile, understand the tradeoffs involved if you consider a no-closing-cost mortgage or want to strategically time the closing date. These moves can save you cash at closing, but acting too quickly without considering the long-term costs can come back to bite you later.
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