How Homebuyers Can Negotiate Closing Costs

Try this game plan to reduce those pesky fees

Hands holding $100 bills

 Arman Zhenikeyev/Getty Images

Between the down payment, real-estate-agent commission, insurance, and other fees, the path to homeownership is littered with expenses. But many buyers are taken aback by closing costs.

Closing costs comprise about a dozen items, ranging in cost from less than $100 to a couple of thousand dollars. All together, they often add up to 2% to 5% of your home’s purchase price.

Fortunately, closing costs aren’t necessarily set in stone. You have some latitude with these expenses, and there are several ways to reduce your closing costs, negotiate a lower price, or get them covered by another party in the transaction. Below is a guide.

What Costs To Expect

Although closing costs vary by lender and location, here’s what you can generally expect to pay for each line item.

Application fee: $25 to $500

Loan origination fee: 1% of the loan value

Transfer fee: $10 to $50

Pest inspection: $75 to $500

Property survey: $85 to $600

Flood determination fee: $15 to $25

Credit report fee: $30 to $50

Document preparation: $50 to $100

Settlement fee: $250 to $1,500

Notary fee: $50 to $200

Tax certification: $25 to $50

Hazard disclosure fee: $75 to $150

Keep in mind that closing costs are separate from others you may pay in the home-buying process, such as homeowners insurance, title insurance, homeowners association dues, private mortgage insurance, and property taxes.

What You Can Negotiate

Your mortgage lender is obliged to give you a loan estimate that breaks down your monthly payment, as well as the closing costs you’ll be expected to cover. On it, you’ll see a section marked “services you can shop for,” indicating the exact fees you have wiggle room on. Other fees, however, are imposed by the government or third parties and aren’t up for debate.

Can You Negotiate This Fee?
Yes Maybe No
Pest inspection Underwriting fee Appraisal fee
Title search Application fee Flood certificate fee
Insurance binder Mortgage rate Credit reporting fee
Settlement agent fee   Taxes
Property survey   Recording fees
Loan policy   Other government fees

How To Shop Around

Start by looking for a better deal on the costs that you may be able to control, or those in the “services you can shop for” section of your loan estimate.

Start by gathering quotes from local pest inspection providers, title/settlement companies, surveyors and other vendors. Once you’ve found a quote you’re happy with, alert your loan officer so they can contact the vendor and update your estimates. They’re required by law to update your estimate if important information changes.

If you’re looking to lower your lender-side costs, your best bet is to use loan estimates from other lenders. If a lender quotes you lower origination, underwriting or other fees, send the estimate to your loan officer or broker and ask for them to match the other lender’s offer. If they say no, you have the option to switch to the lower-cost lender, although this could delay your closing date.

Be sure you let each lender know you’re shopping around, too, as this will encourage them to give you their best offer and really compete for your business.

Other Options for Reducing Your Upfront Closing Costs

If both parties are eager to close the deal, you may have some leverage over who pays the bills. And if you can’t reduce the amount you pay, you may at least be able to reduce the amount of cash you have to lay out upfront. Here are some options to try:

  • Ask the seller to cover some or all of your costs
  • Roll them into your loan balance (if your lender will allow this)
  • Look for closing-cost assistance programs and grants in your area
  • Choose a later-in-the-month closing date in order to lower prorated fees
  • Ask about lender credits, which raise your interest rate but lower your upfront closing costs
  • Ask your real estate agent to contribute

Finally, keep in mind that closing costs can slightly change by the time you sign on that dotted line, but it shouldn’t be by much. Lenders are legally limited on how much they can increase certain fees. If they go over this, you’ll receive a refund from your lender at closing.