How to Get Closing Costs Waived, Reduced, or Negotiated

Closing costs make up the various fees that come with buying a home. On average, buyers pay between 2% to 5% of their total loan amount. If you are buying a house with cash, you will still pay closing costs to the title company and other involved parties. 

While your lender can build closing costs in the loan, they can still be an unexpected expense that increases your monthly mortgage payments.

Fortunately, there are opportunities to reduce your closing costs and even negotiate them with your lender or seller. Here’s how to get closing costs waived or reduced.

Is It Possible To Waive Closing Costs Entirely?

It is highly unlikely that you will eliminate all potential closing costs and other charges that come with buying a house. The reality is that closing costs are made up of several different fees from different parties. Even if your lender is willing to waive some of these costs, you will still have to pay others. 

This doesn’t mean that you should give up on reducing the closing costs associated with your home purchase. You can make a significant dent in the closing costs you owe by using various negotiation tactics and taking advantage of opportunities.

Which Closing Costs Can Be Reduced?

You might be surprised at how many closing costs can be reduced if you meet with different lenders and negotiate payments. For example, you might find that your title insurance is lower if you work with a specific lender to apply for a mortgage loan.

Additionally, some lenders will have your closing cost waived as an incentive to take out a loan with them.

There are certain closing costs that you cannot lower. There is no point in negotiating your property taxes with your lender because the county sets them. You also can’t reduce the purchase price of the home unless you negotiate with the seller.

However, some lenders are willing to work on the underwriting fee, document recording fees, and credit check fees if they know that you’re going to complete the loan process with them.

Lenders are often willing to get closing costs waived because they know they will make up the lost funds in your interest rate. You might pay less money upfront, but your lender will get their closing costs in the long run through your loan payments. Know how much you are actually saving when you negotiate rates.

How To Get Closing Costs Waived: 10 Ways To Save

There are several ways to get your closing costs waived. You can try multiple tactics to reduce various fees and expenses.

A few small reductions can add up and make a big difference to your total closing costs Here are a few strategies to try.

1. Negotiate With Your Lender

There are two types of charges within your closing costs: lender fees and third-party fees. Lender fees are set by the bank or credit union that you work with, while third-party fees are negotiated with them. Examples of third-party fees include appraisal costs and credit report fees. 

It is unlikely that you will negotiate third-party fees because the lender doesn’t have a say in what its vendors charge. However, you can try to negotiate fees set by the bank or credit union. For example, your lender might recommend buying credits that reduce your interest rate and lower your overall closing costs.

When deciding between credit or closing costs, focus on the big-picture rate for the loan. Make sure you don’t pay more than you expect in the long run just because you want to waive a couple of fees.

2. Negotiate With The Seller

Instead of eliminating closing costs, you can pass them on to other parties in the real estate transaction. If you are in a buyer’s market, where sellers are eager to move their properties, you can ask the seller to cover your closing costs. They will take on this expense to move forward with the deal.

While you can ask the seller to pay your closing costs, they might not agree to this part of the negotiation. If you live in a seller’s market where buyers have to compete for properties, the seller might know they can get a better deal somewhere else. They could reject your offer, causing you to start the home search again.

When negotiating with the seller, consider offering a higher price in exchange for asking them to pay your closing costs. This way you can focus on the down payment and the principal of the loan instead of the fees that come with it. Be open to negotiating so both parties can feel like they got a fair deal.

3. Adjust Your Down Payment

Look at your down payment and consider if you need to set aside funds to cover your closing costs. A large down payment can lower your monthly rates, increase your chances of getting your loan approved, and potentially reduce your interest rate.

It can also eliminate the need for private mortgage insurance (PMI), which is an additional monthly fee that buyers pay until they have at least 20% equity on the home. 

While buyers try to maximize their down payments, you might want to reduce how much you put down if it means you can easily cover the closing costs. This way your closing costs won’t be built into your loan terms, so you might be able to get favorable rates. 

Talk to your lender about the pros and cons of allocating that money to the down payment versus using it for closing costs.

4. Consider A No-Closing-Cost Mortgage

Many lenders are willing to offer a no-closing-cost mortgage if you are worried about paying your closing costs at the designated appointment time. These mortgages build all of the taxes and fees into your monthly payment so you only need to sign the documents on closing day. 

The main benefit is that you, as the buyer, do not have to worry about your closing costs. The drawback is that your monthly payment could be higher than you expect. Additionally, if you aren’t paying closing costs upfront, you might not be as militant about negotiating better rates. Your lender might charge more fees than you expect.  

A no-closing-cost mortgage could be a good way to make homeownership affordable, but you still want to shop around at different lenders to ensure you get the best rates possible.

5. Negotiate When You Refinance Your Mortgage

Negotiating mortgage closing costs isn’t just for buying a house. You can also work with your lender if you are refinancing your mortgage. For example, you can ask your lender to waive the application fee because you already have a mortgage with that bank.

While they will likely still charge an origination fee, you can save a significant amount by not having to pay the application costs. Many lenders will waive these fees because they appreciate your continued loyalty through the refinance process. 

If your lender is unwilling to negotiate any fees, see if you can get better rates from other financial institutions. Your total mortgage cost might be less if you change lenders during the refinance process.

6. Shop Around For Other Lenders

Just because a lender pre-approves you for a loan doesn’t mean you need to move forward with them. Talk to different lenders and ask about their loan terms. This is a good opportunity for you to compare interest rates along with the closing costs that each lender charges. 

For example, PMI can cost up to 2% of the loan’s value each year. If one lender offers a more favorable PMI rate, you could save hundreds of dollars annually.

When talking with various lenders, focus on the annual percentage rate (APR) along with your interest rate. The APR is the total cost of the loan, including all of the fees that come with it. You may be able to find a lender that offers a favorable APR, which both reduces your monthly payment and your necessary closing costs. 

You should never feel pressured to work with a specific lender and can always shop around for better terms and walk away from a loan.

7. Buy For Sale By Owner (FSBO)

Some sellers list their properties as FSBO because they want to save on closing costs. They do not want to pay hefty real estate agent commissions which can reach up to 6%. You can consider representing yourself as a buyer and working with a real estate attorney instead of a Realtor when making offers to FSBO properties.

This might make your offer more appealing to physical sellers because they won’t have to pay your agent’s commission. You might even be able to offer a lower price and get a good deal on a home. 

This option is also risky. You have to trust that the seller is acting ethically and you both need a strong understanding of the real estate process. Some lenders also might be wary of FSBO transactions.

This option also takes more work because you have to handle all of the tasks that your real estate agent would otherwise do for you. Make sure you feel confident in this choice before moving forward and making an offer.

8. Shop for Affordable Insurance Rates

While you don’t make a payment on your mortgage loan until a month after you close on the house, you may need to start making homeowners insurance payments right away. Call multiple homeowners insurance providers to make sure you are getting the coverage you need without overspending. 

Many lenders build insurance and property taxes into the monthly payments, which will affect the size of the loan they are willing to grant. If you can save on home insurance, you might find that your loan estimate is lower than you expect, reducing your closing costs as a whole.

9. Separate Closing Costs From Your Lender

Some lenders build fees into your closing costs because they work with third parties to provide various services. You might be able to pay your closing costs in advance and get better deals by separating these bills from your overall mortgage. 

For example, most buyers get their homes inspected and appraised before they are cleared to close. Instead of letting your lender cover these costs, you can pay for the services on your own. The average home inspection costs $342, but it depends on your location, the size of the house, and any bonus features like an in-ground swimming pool. Your home appraisal will be similarly priced. 

If you aren’t familiar with the real estate process, you might prefer if your lender handles these third-party payments for you. They can negotiate fair prices for the services so you only have to worry about paying the closing costs. This is often simpler than trying to negotiate the expenses on your own.

10. Delay Closing Until The End Of The Month

Most mortgage loans schedule the first payment after 30 days of the closing appointment. If you schedule your closing date for April 30th, then your first mortgage payment will fall on June 1st. 

Strategically timing your closing date can help you save money and avoid double paying your mortgage or rent at the same time. For example, if you currently rent and close on your new home, you can make one more rental payment and live in the house for 30 days while you move into your house. This prevents you from paying both rent and a mortgage at the same time.

This doesn’t technically reduce your overall closing costs, but it can make balancing your finances easier during this transitionary time. You also don’t have to worry about paying any prorated homeowners association (HOA) fees and other monthly costs. Talk to your real estate agent if you have a specific closing date in mind.

What If You Still Can’t Afford Closing Costs?

Your closing costs shouldn’t be the reason you cannot afford a home. There are multiple ways to negotiate these fees and there are close cost assistance programs available. First, follow the steps above to see if you can lower your various charges and expenses. This will reduce the amount of coverage that you need.

Next, look into closing cost assistance programs and grants that cover these expenses for you. There are multiple state and federal grants that help people become homeowners by paying their closing costs. HomeFundIt and Virginia Housing are just two examples.   

You can also work with your lender to build your closing costs into your monthly mortgage payment. This way you can move forward with the home purchase and can pay off your closing costs with your other expenses. It’s common for lenders to build loan origination fees and other charges into these payments anyway. 

Know that you aren’t alone when considering how you are going to cover your closing costs. An estimated 30% of home buyers are worried about paying these fees at the closing appointment.

Ask Your Agent About Closing Cost Assistance and Fee Negotiation

Everything is a negotiation and real estate, including closing costs. You might be surprised which upfront closing costs you can build into your mortgage or wave entirely with a little strategic negotiation.

To start this process, ask your Realtor for a breakdown of your expected closing costs and estimates of what they will be. Your agent can tell you what each closing cost means and where you can potentially negotiate them. You don’t need to be an expert in real estate when you have the right professional by your side. 

To find a Realtor in your area, turn to FastExpert. You can find quality, highly-rated agents with proven track records. Work with a Realtor who specializes in helping first-time home buyers so they can help you understand your closing costs. You might be surprised by what you can save. Try FastExpert today.