How to lower closing costs: 6 negotiation strategies

You’ve found a home, settled on a price with the seller and secured a mortgage loan. Yet, as you approach the closing, you’re concerned about mounting expenses and those pesky closing costs. The amount a borrower pays in closing costs varies depending on a number of factors, most importantly the home’s price and which state you’re located in. These fees, charged by the lender and other vendors, can add up quickly.

As a general rule, you can expect closing costs to cost you somewhere between 2 and 5 percent of the home’s purchase price, according to Freddie Mac. So for example, if you buy a home for $350,000, you will likely owe between $7,000 and $17,500 in closing costs (not including real estate agent commissions, if applicable).

The good news? Many of these costs are negotiable. Here are six negotiating strategies to help reduce your closing costs, whether you’re buying a home or refinancing your current one.

1. Use your loan estimate to comparison shop

Your lender is required to give you a loan estimate within three days of completing a mortgage application. This form includes an itemized list of costs, including your loan amount, interest rate and monthly payments.

On page two of the form, you’ll see a section called “Services you can shop for.” These typically include a pest inspection, a survey and fees for the title search, settlement agent and insurance binder. The vendors listed on the form might be your lender’s preferred vendors, but you’re not required to work with them. Your lender is also required to offer alternatives, plus you can also shop around for lower-priced vendors on your own.

However, be aware of potential price hikes: A lender-provided vendor is not allowed to change its pricing by more than 10 percent from the original quote. But if an independently selected vendor changes its pricing before closing, you’ll be on the hook for any increase, no matter how large.

Additionally, if you’re buying a home, note that the seller or seller’s real estate agent might be the ones who chose the title and escrow provider. If you want to get new vendors for these, you’ll need to negotiate that with the seller, not with your mortgage lender.

2. Pay attention to lender fees

Most lenders charge a variety of loan-related costs, including fees for origination, underwriting and more. You probably won’t be able to get out of them altogether, but it’s worth asking if your lender is willing to knock them down a bit or offer you a discount. Some lenders even offer incentives to attract borrowers. These rebates can knock down various costs by a few hundred dollars — easy money for the time it takes you to ask.

It’s also a good idea to compare offers from other lenders. If you can get an estimate before you submit your application, try to get different loan estimate forms from different lenders to compare. Pricing changes frequently, so for the most accurate basis of comparison, try to get these estimates on the same day and at the same time.

3. Know what the seller typically pays for

Who pays for which closing costs? While the buyer pays many of these, the seller is typically obligated to pay certain other costs. This can vary depending on which state you’re in. You can ask your seller to chip in to cover some of your portion, often called a seller concession, which would be reflected as “seller credits” on the loan estimate form.

This strategy might not work in a strong seller’s market, where sellers have much more leverage, but it’s common to ask. In fact, National Association of Realtors data shows that 24 percent of home sellers offered some form of concession to their buyer in 2024 — and in 2023, that number was 33 percent.

4. Consider a no-closing-cost option

Some lenders offer no-closing-cost loan options, usually in exchange for a higher interest rate. While this saves you from having to pay the money upfront at the closing, it ultimately costs you more in the long run because your lender is effectively absorbing these costs while you pay a higher rate.

5. Look for grants and other help

Many cities, counties and states have down payment and closing cost assistance programs for qualified homebuyers, especially first-time homebuyers. If you are eligible, these can help you cover some of the costs associated with closing. Explore your options to see what you might qualify for, and ask your real estate agent if they know of any programs that might work for you.

6. Try to close at the end of the month

If you are able to schedule your closing for the end of the month, you can reduce your cash outlay at closing by reducing the number of days to which the per diem interest is applied before your first mortgage payment is due (usually on the first of each month).

To see how much you’d save, just multiply your loan amount (the total amount financed) by your interest rate — for instance, if your rate is 7 percent, multiply by 0.07 — to get your annual interest expense. Then, divide that figure by 360 to get your daily interest charge (most lenders calculate interest using 360 days, not 365). Next, multiply that figure by the number of days left in the month plus the first day of the following month. If your loan is funded toward the end of the month, this figure would be much lower than if you were closing mid-month.

Bottom line

If you’re prepared for mortgage closing costs well before they hit, you won’t be surprised by the final figure. Don’t settle for the first thing your lender quotes you, and don’t hesitate to shop around to compare costs from other lenders early on in the process. You can also try to negotiate some of these costs, try to get the seller to help with others and look into state or local programs for more closing cost assistance.