How To Get Closing Costs Waived, Reduced Or Negotiated
If you’ve been browsing homes online recently, you may have come across a beautiful home with a realistic-sounding price. However, buying a home means more than just affording a mortgage. Many traditional home purchases usually involve a down payment and closing costs, which can increase a home buyer’s expenses by tens of thousands of dollars.
Closing costs include property taxes, escrow, bank fees, homeowners insurance, insurance fees and more. As a result, your lender, real estate attorney, title company and other parties will require payment when you purchase your home. Your purchase price and loan amount can drive up costs as well.
Fortunately, you may be able to get closing costs waived through several strategies, including negotiation, shopping around for services and first-time home buyer programs. Here’s how to do so and the options you could have available if you can’t afford closing costs.
Is It Possible To Waive Closing Costs Entirely?
Closing costs come from services necessary to the closing process, so it’s next to impossible to get them entirely waived when buying a house. You’ll pay for services from your mortgage company, attorney, title insurer and municipality. So, every home buyer financing their purchase will deal with closing costs.
Although closing costs are inevitable, you may be able to reduce some of them. The following is a list of adjustable closing costs and how to lower them.
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Which Closing Costs Can Be Reduced?
If you want to reduce closing costs, consider doing so with these factors:
- A home inspection evaluates the condition of the home’s structure, systems and appliances. You can shop around for a home inspector and choose the least expensive option to potentially save up to a couple hundred dollars. In addition, home inspections are optional, so you can skip it altogether to save more. However, you’ll risk buying a home without realizing it has a cracked foundation, leaky roof, or other severe – and costly – issues.
- Homeowners insurance. Unlike a home inspection, homeowners insurance is required if you use a mortgage to buy your home. However, it’s generally an excellent idea to have homeowners insurance even if a lender doesn’t require it of you. That said, you can save money on insurance by purchasing a plan with a high deductible and more minimal coverage.
- Lenders charge origination fees to cover the cost of creating your mortgage and preparing the necessary closing documentation. Generally, origination fees are between 0.5% and 1% of your loan amount. So, you can shop lenders when looking for a mortgage and pick one with less expensive origination fees to save money. In addition, you can ask for an explanation for the fees and try to negotiate a lower price.
- Application fee. Similarly, most lenders charge application fees. Finding a lender with a low or waived application fee could lower closing costs.
- Agent commissions are trickier because sellers usually pay the real estate commissions at closing. Generally, real estate commissions come out to 6% for the buyer’s and seller’s agents to split. That said, the seller might bump up the home sale price to account for the cost. Therefore, it’s best to understand upfront what your agent will charge and whether the seller is artificially inflating the sale price to avoid shouldering this closing cost.
- Title insurance investigates the home’s history and verifies that the home will belong solely to the buyer after the transaction without any disputes. Forgoing title insurance means you could inherit liens, fees and even mortgages from past owners. Therefore, while purchasing title insurance is a must, you can shop around and find the most affordable company.
- A property survey might be mandatory, depending on your lender. The survey will give precise measurements of boundary lines, easements, elevation and hazard areas. So, you can research several survey companies to find the best price. If it’s not required and you’re not concerned about the conclusions of a survey, you might be able to skip it altogether and increase your savings.
- You may need a real estate attorney to help close the transaction, depending on your state. In this situation, you might pay a lawyer thousands of dollars. So, it’s a good idea to shop around and find an affordable attorney. Remember, attorneys have differing fee structures, from flat fees to hourly rates.
- Discount points allow buyers to lower their interest rate in exchange for 1% of the loan amount per point. However, the reverse can help you save money at closing, meaning you apply for a lender credit to increase your interest rate and lower closing costs.
How To Avoid Or Reduce Some Of Your Closing Costs: 10 Ways To Save
Now that you know which closing costs are negotiable, here are 10 strategies to lower these expenses:
1. Negotiate With Your Lender
When you apply for a mortgage, you’ll receive a Loan Estimate from your lender. This three-page document summarizes the terms and costs of your home loan. After reviewing the Loan Estimate’s components, you can ask your lender to reduce or eliminate some, such as the origination and application fees.
2. Negotiate With The Seller
Generally, buyers pay more closing costs than sellers, meaning it’s up to the buyer to lower costs. If the seller’s home isn’t getting much attention from other buyers, you might be able to persuade the seller to take on more of the closing costs to sweeten the deal for you. In addition, negotiating a lower sale price can lower your closing costs because many of them are a percentage of the sale price. However, in a seller’s market, the competition among buyers makes this option less likely.
3. Lower Your Down Payment
Your down payment may have some flexibility in the amount you pay. Specifically, a conventional mortgage requires a minimum 3% down payment. So, sticking to the minimum will allow you to allocate more cash toward closing costs. However, doing so will maximize your mortgage principal, meaning you’ll pay more for your mortgage in the long run.
4. Consider A No-Closing-Cost Mortgage
If you don’t have the money to cover closing costs, you could get a no-closing-cost mortgage. This type of home loan doesn’t eliminate closing costs. Instead, it rolls your closing costs into the loan principal, so you repay it over time with interest. While this option makes closing costs more expensive because of the interest rate, it takes the pressure off buyers at the closing table.
5. Refinance Your Mortgage
Refinancing a mortgage means replacing your mortgage with a new one. Homeowners refinance to secure better rates and terms for their loans. So, you can use a no-closing-cost mortgage to purchase your home, meaning you don’t pay any closing costs upfront. Then, if you refinance the mortgage with better rates and terms, you’ll ultimately reduce your closing costs.
6. Shop Around For Other Lenders
Buying a home usually means getting a mortgage. So, one of your first steps as a home buyer will be choosing a mortgage lender. Lenders have varying fees, rates, requirements and perks. Therefore, it’s best to gather the details from several before picking which suits you best, such as the one with the lowest closing costs. Keep in mind, though, it isn’t always about closing costs. You may choose one with better terms, lower interest rate or one you feel comfortable working with.
7. Buy For Sale By Owner (FSBO)
A property that’s for sale by owner (FSBO) means the owner isn’t paying a real estate agent to help sell the house. Doing so reduces the owner’s expenses, meaning they might sell the house for a lower price. In addition, you can try buying without a REALTOR® to prevent real estate agent commissions from increasing your closing costs.
However, going solo means handling each part of the home buying process without professional help. It can be challenging to research homes, decipher the seller’s disclosure, make a competitive offer and negotiate on your own. Therefore, it’s best to understand what you’re giving up before entering the real estate market without an agent.
8. Take Advantage Of A Rebate Program
Some lenders offer a closing cost rebate in exchange for a higher mortgage interest rate. These programs reduce upfront closing costs but increase the overall amount you’ll pay over the life of the loan. So, it’s best to weigh the pros and cons before signing the dotted line. That said, you may be able to refinance after buying your home and avoid having the higher interest rate for the life of the loan.
9. Explore Closing Cost Assistance
If closing costs are financially burdensome, assistance is available through many first-time home buyer programs. These programs are usually for buyers who haven’t owned a home in at least 3 years, need assistance with closing costs for their primary residence, and will live in the home within 60 days of closing. Buyers who fit this profile may be able to receive a grant, 0% loan or forgivable loan to fund their closing costs.
10. Delay Closing Until The End Of The Month
Closing at the beginning or end of the same month affects how much interest you’ll pay on the loan. Specifically, scheduling closing day toward the end of the month can save you money because your lender charges interest daily. By closing at the end of the month, you reduce how many days you pay interest, reducing your overall closing expenses.
What If You Still Can’t Afford Closing Costs?
Despite the strategies above, closing can still cost well above $10,000. So, if your negotiations and cost reductions aren’t enough, here’s what you can do to afford closing costs:
- Delay your home search and save more money: First, you can put the brakes on your homebuying journey to stockpile some cash. Taking 6 months or more to do so can help you accumulate the money needed to afford closing.
- Lower your home buying budget: By lowering your home buying budget, you can reduce closing costs. Because closing costs depend on the loan amount and purchase price, buying a less expensive home can make the closing costs more affordable. You’ll also have a lower down payment, leaving more money for closing.
- Looking beyond single-family homes: Conventional single-family homes are just one housing option available. You can expand your search to modular or manufactured homes, condos, mobile homes and tiny houses. Just be aware that some types of homes may be more difficult to finance.
The Bottom Line
Closing costs are the final financial hurdle for home buyers and can be tough to afford for some. While you can’t dodge closing costs completely, you can reduce or negotiate some of them. In addition, buying a less expensive house will reduce your closing costs and down payment, making closing less stringent.
