How can I reduce my closing costs?

Closing costs are pretty straightforward, but there are certain ways that you can reduce your out-of-pocket expenses. You can ask the home seller to cover some of the costs, for example, since lenders allow the seller to credit the buyer up to 5 percent of the purchase price for nonrecurring closing costs. These are costs that are paid on a onetime basis such as escrow, title, and transfer fees. Bear in mind that you may have to pay a bit more for the home to compensate the seller for paying your closing costs, particularly in a ‘‘hot’’ market, where the seller could easily find buyers who can cover their own closing costs.
Here are a few other strategies for reducing and/or eliminating your upfront closing costs:
❑ Ask your lender to pay your closing costs: Because lenders make a fee on each loan they make, your willingness to take out a loan at higher-than-market interest rates could convince the lender to make extra up-front fees. Those fees can be used to pay your closing costs.
❑ Finance your closing costs: Some lenders will allow you to finance (via a credit card, or by rolling them into the loan). Ask your lender up front if either or both strategies are acceptable.
❑ Secure a no-point, no-fee loan: The lower the points (see glossary), the higher the interest rate—and subsequently, the higher the payments—on a mortgage. Securing a no-point, no-fee loan will lower your closing costs, but realize that there is always a trade-off between points paid and the mortgage’s interest rate.
❑ Negotiate with the service providers: Most buyers won’t argue with a $300 title search, but what they don’t realize is that they have choices of appraiser, escrow company, and title company. Check that each of these providers’ fees are competitive before doing business with them.
❑ Defer closing costs by closing late in the month: Opt for a closing date around the end of the month and you’ll save money on upfront interest. When you close, lenders collect interest for the remainder of the month. With only a few days left in the month, you’ll end up paying just a few days of interest up front. To best educate yourself on closing costs and what’s required of you financially at settlement, check out the HUD settlement statement online at www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm (click on ‘‘Specific Settlement Costs’’). Here, HUD gives home buyers a comprehensive look at settlement costs and goes through an actual closing statement line by line. Familiarize yourself with the form, which is used on all mortgage transactions, and you’ll be well prepared when you get to the closing table.