How To Get Closing Costs Waived: Is It Possible To Avoid Or Negotiate Them?

Whether you’re a first-time home buyer or moving from one house to the next, you’ll encounter closing costs. And while you can’t eliminate closing costs, there are plenty of options to reduce or negotiate these fees down.

Learn more about which closing costs you can reduce and negotiate to lower fees and save money.

What Determines The Cost Of Closing Costs?

Closing costs typically range from 3% to 6% of the total home purchase price. Home buyers receive a closing document outlining their closing costs 3 business days before closing. Buyers must pay the listed fees on closing day.

Because closing costs are paid at the end of the home buying process, they can be easy for buyers to forget about. While many home buyers save for months or even years to afford their down payment, they don't always make sure to have enough saved to cover their closing costs.

Here are some common closing costs and fees you’ll pay as a buyer:

• Attorney fees
• Appraisal fee
• Credit report and monitoring fees
• Escrow funds
• Homeowners insurance
• Mortgage lender origination fees
• Title insurance and search fees
• Property taxes

When you apply for a mortgage, you receive a Loan Estimate that includes your estimated costs at closing. It’s important to note that your closing costs can vary depending on your total loan amount, loan type and where you’re purchasing the property.

Can You Actually Avoid Closing Costs Completely?

At this point, you’re probably wondering whether closing costs can be eliminated or avoided. Because most closing costs cover services that are essential to the mortgage application and home buying process, it’s almost impossible to cut out all closing costs.

In fact, the only way to technically “avoid” paying upfront closing costs is to roll them into your mortgage with a no-closing-cost mortgage. Despite its name, this option doesn’t allow you to waive your closing costs altogether. One way or another, you’ll pay them. Choosing this route has its trade-offs, such as added interest, which may cost you more in the long term than if you’d paid your closing costs with cash at closing.

The money-saving method you choose will likely have pros and cons. It’s important to evaluate the benefits and drawbacks to decide what works best for you and your financial situation.

5 Ways To Reduce Closing Costs

Luckily, home buyers have a few options available to help them negotiate or lower closing costs. Remember to think about your unique financial situation and choose an option that makes sense for you.

1. Lower Your Down Payment

One way buyers can lower their closing costs is by reducing their down payment. When a homeowner reduces their down payment, they can use their newly freed cash to help pay their closing costs.

Keep in mind that lowering your down payment means less money going to your home. If you want to put less down, talk with your lender to ensure you’re still making a large enough down payment. Conventional loans require private mortgage insurance (PMI) if a buyer’s down payment is less than 20%. Most conventional loans require at least 3% down.

2. Pay A Higher Interest Rate To Get A Rebate

Buyers can also choose to pay a higher interest rate to save on their closing costs. In general, loans with lower interest rates come with higher processing fees. By paying a higher interest rate, the lender may offer the buyer a rebate on fees at closing.

It’s important to note that getting a higher interest rate in exchange for fewer fees may cost you more money over the length of the loan.

3. Negotiate Closing Costs

As a buyer, you can ask questions to help you reduce how much you pay for closing costs.

Not every fee is negotiable, but it may be worthwhile to approach your lender or seller about some fees. Here are some closing costs to consider negotiating:

• Origination fees
• Underwriting fees
• Loan application fees
• Real estate commissions
• Title insurance

Some fees are easier to negotiate than others, but if you’re trying to reduce costs, you’ll never know what you can accomplish until you ask.

4. Negotiate With The Seller

There are a few different routes you can take to negotiate with the home seller. You can try negotiating a lower sale price depending on your local real estate market conditions. A lower home sale price would lower the total closing costs.

Another option would be to consult your real estate agent about seller concessions. Seller concessions establish an agreement between a buyer and seller that the seller will cover certain fees or even pay a percentage of the total closing costs.

Seller concessions are less common in a seller’s market, especially because sellers must also cover their seller closing costs. But in a buyer’s market, a seller may pay concessions to make the sale more attractive.

5. Refinance Your Closing Costs Down The Line

Another alternative to cutting your closing costs is refinancing. As a homeowner, you may want to refinance your home loan to a lower rate down the road, which would ultimately reduce your closing costs.

As you continue to look for ways to save money on your closing costs, consider your financial situation, the economy and the housing market.

What If I Can’t Afford Closing Costs?

Depending on your financial situation, you may have a few strategies to choose from to help afford closing costs. Consider down payment assistance or closing cost assistance. These programs can help lighten some of your financial burden, especially for first-time home buyers.

You should also talk with your real estate agent about looking at smaller homes or different home types, such as modular homes. Considering different types of properties may help expand your search and reveal more affordable options.

If you’ve tried everything and still don’t have enough to afford your closing costs, consider pausing your house hunt to give you more time to build your savings. Buying a house is a huge milestone and it’s often one of the biggest purchases someone can make. Given how momentous buying a home can be, it’s important to take your time to consider whether it's the right time to buy.

The Bottom Line: While You Can’t Waive Closing Costs, You Can Lower Them

As you continue moving through the stages of the home buying process, don’t be afraid to seek ways to save. And remember, while closing costs can’t be eliminated, they can be negotiated down.

Ready to take the next step toward homeownership? Start the application process today to see what you may qualify for.