The process of purchasing or refinancing a home can feel like a never-ending list of expenses, all the way up to costs associated with the closing of the sale. Closing costs add up quickly and can often reach 5 percent of the home’s total purchase price. Closing costs may vary by location and are usually paid by the buyer of the home. Many of these fees can be negotiated to lower the costs or have the seller contribute to these expenses.

These costs are typically paid when the property title is transferred from the former owner to the new owner. Refinancing fees are generally less than new purchases, though similar in the types of expenses incurred. Many homeowners will simply roll the closing costs into the refinance loan.

What exactly do Closing Costs Encompass?

Closing costs are the sum of all expenses that go into getting a mortgage, outside of the cost of the property itself, typically fitting one of three categories –fees incurred from the lender, extraneous third-party fees, and prepaid funds used for interest, property taxes, and insurance expenses. The Loan Estimate your lender will provide you with includes a long, confusing list of likely closing costs.

Common closing costs may include:

  • Application fee

  • Attorney fees

  • Courier

  • Credit report fee

  • Escrow property taxes

  • Flood determination and monitoring fees

  • Government recording fee

  • Home appraisal

  • Lender title insurance

  • Mortgage insurance

  • Mortgage Insurance Premium (FHA loans)

  • Optional owner title insurance

  • Pest inspection

  • Point charge

  • Prepaid daily interest charges

  • Prepaid homeowner’s insurance

  • Rate lock fee

  • Survey

  • Tax monitoring fee and tax status research fee

  • Title search fee

  • Transfer tax

How You Can Save On Closing Costs

Closing costs are not set in stone and can be reduced if you know where to cut expenses. Being proactive and taking advantage of every way possible to get costs down can provide you with significant savings when you need it most. The following are examples of ways to save on closing costs for a home sale or refinance.

Shop Around for Closing Services

Home loan lenders will usually be able to give you an estimate of potential closings costs. Feel free to shop around and get quotes from more than one lender to find the best deal for your circumstance.  While many of the fees associated with closing a home purchase cannot be changed, such as appraisal fees, there is some wiggle room with other items that you can shop around for. Getting multiple estimates for services like pest inspections and title insurance allows you to get the lowest prices to reduce your overall closing costs.

Save on Discount Points

Discount points, also known as mortgage points, allow buyers to pay more in upfront and closing costs for a lower interest rate on the loan. Applying discount points will have you spending less on monthly mortgage payments. Even if mortgage rates are low, paying points can help you control expenses if you plan on staying in the home for years to come. Your lender or realtor can help you make the best decision for your unique circumstances.

Shop for Homeowners Insurance

It is well worth the effort to shop around for homeowner’s insurance. Your lender can help guide you to get the best deal with the lowest payments. Paying less for needed insurance will cut down on overall closing costs and save you on premium payments down the line.

Request the Seller Pay Closing Costs

Depending on the state of the local real estate market and the seller’s willingness to help out, you could ask the seller to chip in for part or all of the closing costs to incentivize the deal for you. The seller is more likely to help with closing costs if you ask for a specific dollar amount or percentage of the total expenses rather than asking them to pay for specific services. Some loans come with limits on how much the seller can contribute to closing costs.

Be Leery of Offers With No Closing Costs

Many mortgage companies offer various types of no-cost home loans. The lender essentially exchanges a higher interest rate for a credit that is applied to the closing costs. No cost loans will save you money at the top but will cost you more in the long run if you plan on living in the home for an extended time.

Close As Near to the End of the Month As Possible

You will need to prepay any interest that accrues from the time you close until the end of that month. The later in the month you close, the less interest you will have to pay. Scheduling your closing at the end of the month could wind up saving money in accrued interest for that month.

Ask For Your Closing Costs as a Gift from Friends, Family

If your home loan is coming from a government-insured program from the FHA, USDA, or VA, your closing costs can be gifted funds from friends or family members. You will still be responsible for the taxes on that money, but it is a way to let your loved ones help reduce the expenses of buying a new home.

Closing Cost Assistance

There is a wide range of down payment assistance programs available to low-income homebuyers throughout the country. Programs and terms vary depending on where you live, though most come with property location requirements.

Negotiating Closing Costs Can Lead to Big Savings

There is no way of getting around the closing costs associated with purchasing a new home or refinancing an existing one. It is important to take these expenses into account when budgeting your new home purchase. Working to lower closing costs takes hard work, persistence, and time, but it can be done. If you are willing to negotiate, you have the potential to save hundreds or even thousands of dollars.