5 Ways to Lower Your Mortgage Closing Costs

You don't have to accept that closing costs are going to cost a fortune.

Closing costs can be very expensive when you buy a home.

In fact, according to The Ascent's research, you'll usually pay 2% to 5% of the mortgage amount in closing costs. And in 2020, average closing costs actually added up to $5,749. That's a lot of money to come up with on top of the other expenses associated with becoming a homeowner.

The good news is, there are ways to reduce these upfront expenses. Here are five techniques you could try in order to keep more money in your pocket when you get a mortgage loan.

1. Shop around carefully for a lender

Some lenders charge higher loan origination fees than others, and some don't charge this fee at all.

You should get quotes from multiple mortgage lenders. When you do, don't look just at the interest rate. Look at both the mortgage rate and the fees -- and find a lender that won't charge you a fortune up front or over time.

2. See if fees are negotiable

In some cases, mortgage lenders may be willing to work with you and negotiate fees to capture your business.

Take a close look at all the fees and see if the lender is willing to reduce the costs or drop any of them. There's a lot of competition these days among mortgage lenders, so it never hurts to ask.

3. Negotiate with sellers to cover some of your costs

Sellers can sometimes provide a closing cost credit, which would mean the seller gives you money back at closing to cover some of your upfront fees.

You'll need to negotiate this with the seller as part of your purchase agreement when you make an offer. The seller may not be willing to do this in a competitive market if they have multiple interested buyers. Lenders also typically have restrictions on how much a seller's credit can be.

Still, if you're really worried about coming up with the money for closing costs, you may want to propose this as an option when you make an offer to buy and see if any sellers bite.

4. Buy a less expensive home

Closing costs can be impacted by the price of the home. Title insurance fees, appraisal and survey expenses, transfer taxes, and a host of other fees can all be more expensive for homes that come with a higher price tag.

If you choose a cheaper house, you'll not only reduce some of these costs, but should also be able to put down less money for a down payment. In that case, you may have more cash left over to cover your closing fees.

5. Time your closing strategically

Closing costs typically include prepaid daily interest to cover the interest costs that will be incurred on the loan between the time you close on the home and the time the first payment is due.

If you time your purchase strategically for the end of the month, you can minimize the amount of prepaid interest you owe, which would reduce the fees you'll owe.

Taking one or all of these five steps can make a big difference in the amount you have to pay to close on a home. Remember, though, that closing costs are just the start of the expenses you'll have once you're a homeowner. If you're struggling to come up with the funds to pay them, ask yourself if you're financially ready to buy before you commit to a home purchase.