Closing Costs

Studies show that coming up with the down payment and closing costs, which can average 2 to 3 percent of the total purchase price, are the largest obstacles to home ownership. Closing costs vary from one transaction to another and will certainly be less if one is buying a property without a mortgage and its paying with cash out of their own pocket. But most people don't have that option. Here are some other ways to save:

  • Some home sellers who are anxious to sell will pay all or part of the closing costs, but these special circumstances must be disclosed and acceptable to the lender who makes the first mortgage on the property. Concessions will typically be agreed upon during the offer-counteroffer-acceptance cycle, though sometimes a seller will agree to make payment of closing costs during the escrow process.
  • In addition, no-point loans can reduce closing costs. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
  • Some lenders also advertise loans without any fees, such as appraisal and escrow charges. But these fees are also wrapped into a higher rate> *Generally, seller financing comes without the traditional loan fees and charges.
  • A lease with an option to purchase is another tool sellers can use to induce a sale, where the buyer lacks sufficient funds for down payment and closing costs.

The best option for reducing closing costs is to shop around. Each lender and each mortgage brokerage has their own fee structure. So call around before submitting your final loan application.

Sellers sometimes pay for all or a portion of the closing costs involved in the sale of a property, depending on local real estate market conditions, other terms of the purchase contract, the seller's cash and timing considerations.

Seller concessions, as they are known in real estate jargon, for at least part of the closing costs are more common in a buyer's market than in a seller's market. These concessions will typically be agreed upon during the offer, counteroffer acceptance cycle, though sometimes a seller will make further concessions during the escrow process. Such concessions would generally be acknowledged in the form of an addendum to the purchase contract.

In addition, most lenders will allow a credit from the seller to the buyer for the buyer's nonrecurring closing costs. But they usually won't allow a credit that reduces the amount of the buyer's down payment, or that includes any of the buyer's recurring closing costs, which include such expenses as fire insurance premiums, interest on the buyer's new loan, property mortgage insurance and property taxes. Lenders' policies vary on how large a credit for nonrecurring costs they'll allow.