Are closing costs negotiable?

When you buy a home, closing costs are a significant expense buyers pay in addition to their down payment. Closing costs usually total 3% – 6% of your loan amount and cover the costs of funding your loan and transferring legal ownership of the home from the seller to you. Negotiating closing costs is possible and can reduce the amount you need to pay up front to buy a home. Learn more about ways you can reduce closing costs.

Key takeaways:

• You can't avoid paying closing costs, but you can negotiate or shop around for specific fees to save money.
• Some closing costs are nonnegotiable, like government fees, appraisal fees, and property taxes.
• Buyers can reduce costs by comparing lenders, asking questions, and negotiating seller concessions or lender credits.

What are closing costs?

Closing costs are fees you pay your lender to fund your mortgage, third-party services such as appraisals and inspections, and to government agencies to transfer legal ownership of the property and record it in public records.

Closing costs are paid in addition to your down payment. How much you’ll pay varies, but it’s usually between 3% – 6% of the loan amount. If you take out a mortgage loan for a $300,000 home, you can expect to pay $9,000 – $18,000 in closing costs. It’s a good idea to budget for the higher end, so you’re not surprised by the amount.

Your estimated closing costs appear on your Loan Estimate, which your lender must provide within 3 business days of applying for a mortgage. Your final closing costs are listed on your Closing Disclosure, which your lender will provide at least 3 business days before your scheduled closing.

Sellers also pay closing costs, such as real estate agent commissions.

What mortgage closing costs are negotiable?

Many of the lender fees associated with securing a mortgage are negotiable, and asking your lender to reduce or waive these fees can save you money.

Which mortgage closing costs are nonnegotiable?

Some closing costs are nonnegotiable, so you can't reduce or eliminate them.

Steps for reducing your closing costs

Now that you know which closing costs to negotiate, you can work with your lender to adjust these fees. Here are some tips to help you prepare for these negotiations:

Work with your lender

You can always ask your lender to reduce or waive closing costs.

Start by reviewing your closing costs in the Loan Estimate. If a fee seems high, ask if it can be reduced. It’s easier to negotiate if you’ve already shopped around with more than one mortgage lender and have an idea of the fee costs. You can compare the fees each lender is charging and ask them to lower the high costs.

While your lender won't waive or reduce all the fees you ask about, you could still see a reduction in overall costs.

You also can ask for lender credits, which reduce your closing costs by having your lender pay them in exchange for a higher interest rate on your loan.

Ask the seller to contribute

Another option for reducing your closing costs is through seller concessions. This is when sellers agree to pay costs that are traditionally paid by buyers.

The seller may be more receptive to your request in a buyer’s market versus a seller’s market. If the home has been on the market for a while, the seller may be more willing to make concessions. On the other hand, if the seller has multiple offers and homes are selling quickly, they may be less likely to agree to concessions.

Roll your closing costs into your mortgage

If you’re struggling to come up with enough cash to pay your closing costs up front, you might be able to roll these fees into your total loan amount.

Many lenders offer no-closing-cost mortgages, which means you don’t pay your closing costs up front. You still pay these costs in the form of a slightly higher mortgage payment because you're now borrowing more money.

Say your closing costs on a $300,000 mortgage are $9,000. If you roll these costs into your mortgage amount, you’ll borrow $309,000. To pay off your loan in the same number of years, you’ll need to pay a bit more each month.

Your lender also might charge a slightly higher mortgage interest rate for a no-closing-cost mortgage.

Research home buyer assistance programs

States and local housing agencies offer down payment assistance programs that help borrowers with their down payment or closing costs. These programs typically have specific qualifications, including requirements that you be a first-time buyer, not exceed certain income limits, or be located in specific areas.

There are plenty of programs that you may qualify for, so it’s best to research them thoroughly. HUD maintains an online list of programs by state.

You also can speak with a lender or real estate agent who understands local programs to get an idea of what might fit your needs.

When is the right time to negotiate closing costs?

While there’s no “right time” to negotiate closing costs, there are certain times when you may have more negotiating power with the sellers and your lender.

Lenders might be more willing to negotiate closing costs if you have a high credit score or are taking out a larger mortgage. With higher credit or a larger loan, your lender may view you as a more reliable borrower.

If you’re asking the seller to pay some of your closing costs, it's often easier to negotiate when you're in a buyer’s market.

If you’re buying in a seller’s market, where homes are selling quickly and for higher prices, asking for too many concessions may cause the seller to move on to another offer.

The bottom line: Negotiating closing costs can save you money

Buying a home is more than just a down payment, and negotiating closing costs can help you save during the process. Once you understand which costs are negotiable and which ones aren’t, you can work on making buying a home more affordable.

If you’re ready for a mortgage, you can apply for a loan with Rocket Mortgage.