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Reduce Closing Costs

Nov 9, 2021


Reduce Closing Costs with These 5 Tips


When you think about saving for your first home, most people think about the down payment. How much money can they save and offer at the time of purchase to reduce the cost of their home and, by extension, lower the amount of money they borrow?

Until you begin exploring the home buying process, you might not realize how much money involved in purchasing a home is tied up in closing costs. Typically, closing costs are equivalent to anywhere from 2-5% of the price of your home, so it's easy to see how these fees can add several thousand dollars in upfront costs to your home purchase.

What are closing costs?

Closing costs are the various fees that are associated with buying a home and securing a mortgage. You can find a nearly comprehensive list here, but some of most common and most expensive are:

  • Loan origination fees-the lender charges these fees to help cover their overhead costs associated with issuing and managing the mortgage loan


  • Mortgage points-these are fees that you can pay to help reduce the interest on your loan. Each "point" that you pay will reduce your interest by a fraction of a percent.


  • Underwriting fees-the lender charges these fees to cover the costs associated with the underwriting process of verifying your income and the value of the property to approve you for the mortgage loan.


  • Title search and title insurance-these fees cover the costs associated with ensuring that the property has no claims on it and is available to be bought and sold on the real estate market.


  • Appraisal fees-these fees cover the costs associated with assessing the value of your home to ensure the selling price and loan amount are reasonable given the age and condition of the property.


  • Prepaid taxes and insurance-these fees cover the first year of property taxes and homeowner's insurance.


  • Escrow fees-these fees cover the costs of opening and maintaining an escrow account, which will hold a portion of the mortgage payment you make each month to cover the costs of future years' property taxes and insurance.

Ways to Reduce These Costs         

1.      Ask for a Loan Estimate

This legally binding document must be provided by the lender and outlines the various fees that will be incurred at the time of closing. Requesting this document will allow you to compare the costs cited by each lender. Look at what they charge for origination and underwriting fees and see if it's possible to negotiate. It's not unheard of for lenders to reduce, or even waive, origination fees if it means closing the loan.

2.      Shop Around on Services

While it might not be possible to shop around for every service you'll need during the home buying process, in many cases the same services are offered by more than one provider in your area, and you can do some comparison shopping. Services to review can include inspections, surveys, title searches and title insurance, or escrow agents.

3.      Ask the Sellers to Cover Costs

It's very common, especially for first time homebuyers, to ask the sellers to absorb some of the closing costs. When a home is sold, the sellers know they will receive a large sum of money (the purchase price), so they have the cash on hand to cover at least some of the expenses. And if the housing market favors buyers over sellers, many sellers will be motivated to accept these costs so they can close the sale and move on to their next home.

4.      Look into No Closing Cost Mortgages

If you don't have a lot of cash on hand, an option, other than reducing your down payment, is a mortgage with no closing costs. In this case, the costs are rolled into the mortgage. This can be a convenient and attractive option if you don't have a lot of cash on hand, but you will want to make sure you understand how these additional expenses will affect your monthly payment.

5.      Time the Closing Right

 One fee that gets included in closing costs is the per diem interest that will incur between the date you sign the loan papers and the start of the next full month. If you sign the papers near the end of the month, this per diem amount can be reduced by several days.

If you're looking to buy or sell a home, the real estate professionals at Orizon Real Estate will be happy to help you through the process. Call us at 260-248-8961 to connect with agent today.