How to Reduce Closing Costs

1. Comparison Shop

It's always a good idea to compare loan offers from multiple lenders. Eligibility requirements and loan terms vary, and your finances and credit score could merit a better offer from one lender than it does another. This advice most commonly focuses on rate-shopping, but it applies to closing costs too. If you have two loan offers with similar interest rates, look for the offer with lower origination fees and other closing costs.

Learn more: How to Shop for a Mortgage

2. Look Beyond The Loan Estimate

By law, you must receive a formal loan estimate from your lender within three business days of submitting an application. In addition to detailing loan contract terms including loan amount and interest rate, it will typically itemize closing costs, including those for professional services such as the home inspection, title search and home appraisal.

The closing cost estimate commonly lists service providers by name, with their associated fees. With the exception of the appraiser, you aren't obligated to use the service providers the lender suggests. You are free, for example, to shop around for a home inspector to see if you can get a better rate than the one quoted in the loan estimate, and you also can negotiate with listed professionals to see if they'll accept less than the amount quoted on the loan estimate.

Learn more: How to Compare Mortgage Loan Offers

3. Purchase Lender Credits

You can use lender credits to have the lender pay some or all of your upfront closing costs, in exchange for accepting a higher interest rate on your loan. This will likely increase the overall cost of your home, but it can be a good option if cash is tight at closing time.

4. Seek Seller Concessions

If your seller is really motivated (or perhaps if they're a family member willing to help you out financially), they may be willing to offer concessions on the sale, which can include covering a wide variety of closing costs, from property taxes to professional fees and more.

Seller concessions also can take the form of items of value provided at no extra cost to the buyer. Examples of these are home repairs, renovations, appliances and even furniture included with the house. While these add-ons don't directly cover closing costs, they could free up cash you'd otherwise have to spend before moving in, which you could put toward closing costs.

Learn more: Can You Negotiate Closing Costs?

5. Seek Closing Cost Assistance

Many states, municipalities and community organizations offer assistance in the form of grants or low-interest loans to help cover mortgage down payments or closing costs. These are often designed for first-time homebuyers, but you may qualify for some assistance even if this isn't your first home. Ask your lender or real estate professional for information on programs available in your community.

Learn more: First-Time Homebuyer, Loans, Programs and Grants

6. Roll Up Your Closing Costs

Your lender may give you the option of financing your closing costs, effectively adding them to your mortgage and paying them off over the life of the loan. Sometimes marketed as a "no closing cost mortgage," this arrangement reduces the amount of cash you must have on hand at closing, but it does come at a cost. Interest charges on those closing costs, compounded over the life of a loan, can add thousands of dollars to the total cost of your home.

7. Push Closing to the End of the Month

One element of closing costs is per diem charges—prepayment of loan interest, property tax and property insurance applicable for each day remaining in the month following your closing.

For example, if you close on the 15th day of June, you'll pay 15 days of per diem charges, but if you close on the 28th, you'll pay only two days' per diem. Therefore, scheduling your closing late in the month can save closing costs. Spoiler alert: This strategy is widely known, so scheduling an end-of-the-month closing can be challenging. Act quickly to lock in a time and date.

8. Boost Your Credit

Like interest charges, some mortgage-related fees may be based in part on your credit scores, which analyze the statistical likelihood that you'll fail to repay your loan. Taking steps to shore up your credit status—by establishing solid payment habits or reducing outstanding credit card balances, for example—could make some closing costs more affordable.

Learn more: What Credit Score Do I Need to Buy a House?

Frequently Asked Questions

The Bottom Line

To get an affordable mortgage, it pays to understand closing costs and what you can do to reduce them. Anytime you're considering a mortgage, you can check your FICO^® Score^☉ for free with Experian to get an idea how favorable lenders will likely view your loan application.