Understanding Closing Costs and How to Lower Them
When buying a home, you’re probably focused on saving for the down payment—but don’t let closing costs slip off your radar! They are an essential part of finalizing your home purchase and can sometimes feel overwhelming if you aren’t prepared. The good news? With a little planning and some savvy tips, you can manage—and even reduce—your closing costs.
From what these costs entail to strategies for keeping them as low as possible, The Sales Team Realtors got you covered.
What Are Closing Costs?
Closing costs are the additional fees and expenses you’ll pay to finalize your home purchase.
While these costs vary depending on the price of your home and location, they typically range from 2% to 5% of the home’s purchase price. (For example, if you’re buying a $400,000 home, you could expect closing costs between $8,000 and $20,000.)
Why do we pay these costs? Closing costs cover services and processes essential to transferring the home’s ownership from the seller to you. They ensure everything is in place legally and financially—from verifying the property’s value to securing your mortgage. While these expenses can seem like just another hurdle, they play a crucial role in protecting your investment.
What Do Closing Costs Typically Cover?
Here’s a breakdown of what you might find in your closing costs:
Application fees: Charges from your lender for processing your loan application.
Credit report fees: Costs to check your credit history as part of the loan process.
Loan origination fees: A percentage-based fee for creating your loan.
Appraisal fees: To confirm the home’s market value.
Home inspection fees: To assess the property’s condition.
Title insurance: Protects against legal disputes over property ownership.
Homeowners insurance: Covers your home against damages or disasters.
Survey fees: If needed, to map the property boundaries.
Attorney fees: For legal review and document preparation.
Recording fees: To register the sale with local government offices.
Tips for Lowering Closing Costs
Want to keep those closing costs in check? Here are some effective strategies to help you put them into action:
- Negotiate with the seller: In a buyer’s market, sellers may be willing to cover part (or all) of your closing costs to secure the deal. You can request concessions, such as a credit to offset fees or for the seller to pay for specific items like the home inspection. It’s always worth asking—especially if the home has been on the market for a while.
- Shop around for services: Fees for services like title insurance, home inspections, and homeowners insurance can vary significantly between providers. Take the time to get multiple quotes and compare them to make sure you’re getting the best value. Many providers will match or beat competitor pricing if you ask.
- Ask your lender about discounts: Some lenders offer reduced or waived fees for first-time buyers or repeat customers. Additionally, some financial institutions may have promotions or special programs to help offset costs. It’s always worth discussing these options with your lender upfront. (Need a lender recommendation? The Sales Team Realtors would be happy to provide some options.)
- Inquire about assistance programs: Many local governments and nonprofits provide grants or low-interest loans to help with closing costs—particularly for first-time buyers or those in certain professions like teachers or healthcare workers. Check with your agent or lender to find programs in your area—they can often help you navigate the application process.
- Review your Loan Estimate carefully: The Loan Estimate you receive from your lender details all your closing costs, giving you an opportunity to spot unnecessary fees. Look for anything labeled “optional” or fees that seem unusually high, then discuss these with your lender to negotiate adjustments or clarifications.
- Close near the end of the month: When you close earlier in the month, you’ll pay more prepaid interest to cover the days between closing and the start of your loan. By closing closer to the month’s end, you can minimize these extra days and reduce the amount due at the closing table.
Closing costs may seem like just another expense, but understanding them can help you navigate the home-buying process with confidence. With the right preparation and guidance, you can ensure these costs don’t break your budget. If you’re getting ready to buy a home in 2025, let’s connect! The Sales Team Realtors are here to help you every step of the way.