mortgage closing costs, understand they’re 2-5% of the loan, covering lender and third-party fees. Reduce them by shopping lenders, Break down your mortgage closing costs negotiating fees, asking for seller concessions, or using no-closing-cost mortgages. Closing at month’s end can also save on prepaid interest.
What Are Mortgage Closing Costs?
Closing costs are the fees and expenses you pay when finalizing your home purchase. They cover lender charges, government fees, and services from third parties. And yes, they add up fast—typically between 2% to 5% of the loan amount.
Common Mortgage Closing Costs
Here’s a list of what you might see on your closing statement:
- Loan Origination Fees: The lender’s charge for processing your loan
- Appraisal Fee: Paid to a licensed appraiser to determine your home’s value
- Credit Report Fee: The lender pulls your credit report to evaluate risk
- Title Search & Title Insurance: Ensures there are no ownership disputes or hidden liens
- Prepaid Property Taxes: Some lenders require taxes to be paid upfront
- Home Inspection Fee: Paid to a professional who evaluates the home’s condition
- Escrow Fees: Covers costs to a neutral third party to handle paperwork and funds
- Homeowners Insurance: You’ll need to prepay at least the first year
- Discount Points: Optional, but they lower your interest rate in exchange for upfront payment
Now, not every single one of these applies to every buyer, but you get the picture. The lender, title company, and other service providers all take their cut.
How to Reduce Mortgage Closing Costs
Good news: many of these fees are negotiable. Here’s how to lower them.
1. Shop Around for Lenders
Not every mortgage lender charges the same fees. Some tack on extra junk fees that others don’t. Compare loan estimates from at least three lenders and see where you can save.
2. Ask the Lender to Waive or Reduce Fees
Some closing costs are just made-up fees. If you see things like processing fee or underwriting fee, ask if they can be reduced or removed. A solid lender won’t nickel and dime you on these.
3. Negotiate with the Seller
You can ask the seller to cover some of your closing costs as part of the deal. This is called seller concessions. In competitive markets, it’s harder to negotiate, but if the seller’s motivated, they might help out.
4. Use a No-Closing-Cost Mortgage
Some lenders offer a loan where they cover your closing costs in exchange for a slightly higher interest rate. This can be a smart move if you don’t want to pay upfront costs but plan to refinance or move in a few years.
5. Bundle Services
If your lender offers discounts for bundling services, like using a recommended title company or appraisal service, that may help lower costs.
6. Close at the Right Time
Did you know you can save money just by closing at the end of the month? Since prepaid interest charges run from the closing date to the first of the next month, closing later means you’ll pay less upfront.
FAQs
What’s the Average Mortgage Closing Cost?
It depends on your loan amount, but most buyers pay between 2% to 5% of the total loan in closing costs.
Can You Roll Closing Costs into the Loan?
Yes, for some loan types, but this increases your loan amount and interest costs over time.
Are There Any Fees I Should Not Pay?
Be on the lookout for unnecessary fees like application fees, rate-lock fees, or excessive processing fees. Always ask your lender if these can be removed.
Do All Homebuyers Have to Pay Closing Costs?
Unless you’re buying a home with an all-cash deal, closing costs are unavoidable. However, you can negotiate them or use strategies to lower them.
Closing Thoughts
Understanding mortgage closing costs doesn’t have to be a mystery. The more you know, the more you can save. If you’re serious about keeping more cash in your pocket, use these tips to cut costs where you can. For more insights on smart home buying,