How to Lower Your Closing Costs

After your down payment, closing costs typically come in as your second-most expensive home buying charge. For most buyers, they can be somewhere around 2% to 5% of the total purchase price — or about $4,000 to $10,000 on a $200K home.

What is Included in My Closing Costs?

Closing costs are the upfront fees you pay when getting a mortgage and closing the sale of your new home. Basically they cover but might not be limited to:

• Application fee
• Attorney fee
• Closing fee
• Courier fee
• Credit report fee
• Escrow deposit
• Flood determination and monitoring fee
• Homeowners insurance
• Lead-based paint inspection
• Title insurance
• Origination fee
• Pest inspection
• Points or discount points
• Prepaid interest
• Private Mortgage Insurance (PMI)
• Property appraisal fee
• Property tax
• Recording fee
• Survey fee
• Title search fee
• Transfer tax*
• Underwriting fee

*A transfer or conveyance tax is the cost of legally transferring the title or deed from one party to another. There are states, however, which do not charge this fee. They include Alaska, Arizona, Idaho, Indiana, Louisiana, Kansas, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon (except Washington County), Texas, Utah and Wyoming.

Have Closing Costs Gone Up Recently?

Yes. Closing costs have increased over the last five years. According to a report from CoreLogic’s ClosingCorp, the average closing costs for purchase mortgages increased by 13.4% from 2021 to 2022 alone.

This rise in closing costs is attributed to factors such as the increase in home prices and the overall expenses associated with the home buying process. The average U.S. home price surged by more than $50,000 in the same period, contributing to the escalation of closing costs.

10 States with the Highest Closing Costs in 2024

Fortunately, there are a few ways you can reduce your closing costs and make your purchase a bit more affordable. Here are some of the best ones:

• Ask the seller (or your agent) to contribute. Sellers will sometimes offer a concession and pay some or even all of a buyer’s closing costs in order to get the deal done. They’re more likely to do this if their home has been on the market a while or they’re in a hurry to sell and move on. You might also ask your real estate agent to contribute part of their commission. If you know them well or you’ve done a lot of the heavy lifting in your home search, they may be willing to pony up.
• Shop around for your services. When you get your loan estimate from your mortgage lender, you should see a section marked “services you can shop for.” Use this as a guide to find lower-cost providers in your area. Reach out to pest inspectors, title companies, and other businesses in your city and get quotes from each.
• Lender credits. Sometimes, if you’re willing to an accept a higher interest rate on your loan, your lender will grant you “lender credits,” which you can put toward your overall closing costs.
• Choose a later closing date. As part of your closing costs, you’ll have to pay “prepaids,” which cover your homeowner’s insurance, mortgage insurance, interest, and property taxes until your first mortgage payment is due. If you choose a closing date that is later in the month, this cuts down on the number of prepaid days you’ll have to cover, thereby lowering your closing costs altogether.
• Look for assistance programs. If you’re on a tight income, you might qualify for various closing cost assistance programs and grants. Check with the housing authority in your state and look for private programs in your area to see if you’re eligible.
• Consider Appraisal Waivers or Automated Appraisals. Asking your lender for an appraisal waiver or opting for an automated appraisal instead of a full appraisal can save money on closing costs. Not all properties or borrowers are eligible for appraisal waivers. Lenders typically base their decision on factors like the borrower’s creditworthiness, down payment amount, and loan-to-value ratio.
  By waiving the appraisal, borrowers can save time, expedite the loan approval process, and reduce upfront costs associated with traditional appraisals. However, there are potential drawbacks to consider, such as accuracy concerns with automated valuations, limited availability for certain types of loans or properties, and missed negotiation opportunities that an appraisal might provide.

Bottom Line

In some of the cases listed above, you may be able to roll your closing costs into your overall loan balance, which would simply spread those costs out over the entire term of your loan. It would mean a slightly higher payment, though.

Want more information on closing costs and what you can expect? Contact a loan officer at Embrace Home Loans today. We’re here to help.