How to reduce closing costs: 7 negotiation strategies

Finding your dream home is an exhilarating experience, but the prospect of mounting closing costs can be a cause for concern. On average, closing costs can range from 2% to 4% of the total home price, with nationwide figures averaging $6,905 in 2021. However, the good news is that many of these costs are negotiable. In this post, we’ll share seven effective strategies to help you reduce your closing costs, whether you’re purchasing a new home or refinancing.

1. Table of Contents

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   Shop Around for Services:

   • Request a loan estimate form from your lender, which should be provided within three days of completing a mortgage application.
   • Focus on the “Services you can shop for” section, such as pest inspection, survey, title search, settlement agent, and insurance binder.
   • You have the freedom to choose vendors, and you can also explore lower-priced alternatives independently.

2. Negotiate Lender Fees:

   • Many lenders charge fees for origination and underwriting. While they may be unavoidable, inquire if there’s room for negotiation or reduction.
   • It’s wise to compare offers from different lenders to ensure you’re getting the best deal.

3. Understand Seller Obligations:

   • Sellers typically cover certain closing costs, including real estate agent commissions.
   • Consider negotiating with the seller for concessions to help offset some of your expenses.

4. Explore No-Closing-Cost Options:

   • Some lenders offer no-closing-cost loan options, often with a higher interest rate.
   • While this defers upfront costs, it may result in higher overall expenses due to the elevated interest rate.

5. Seek Grants and Assistance Programs:

   • Many cities, counties, and states offer programs to assist qualified homebuyers, especially first-timers.
   • These programs can provide valuable financial support for covering closing costs.

6. Opt for End-of-Month Closings:

   • Schedule your closing at the end of the month to minimize per diem interest charges.
   • This can result in significant savings, as your daily interest charge is lower when the loan is funded toward the end of the month.

7. Inquire About Discounts and Rebates:

   • Some lenders offer incentives and rebates to attract borrowers, which can help lower various closing costs.
   • Don’t hesitate to ask about these potential savings, as they can amount to substantial reductions in expenses.

Conclusion:

By employing these seven negotiation strategies, you can take proactive steps to lower your mortgage closing costs. It’s essential to be prepared and informed throughout the process, from requesting loan estimates to exploring alternative vendors and seeking out available assistance programs. Remember, with the right approach, you have the power to significantly reduce the financial burden of closing costs.