How to minimize mortgage closing costs

While buying a home can be a great investment, there is no denying that it is an expensive proposition. Not only are you paying for the cost of the home itself, but you're also likely taking on a mortgage and will have to pay interest on the loan. 

But one expense that's easy to forget about is the closing costs. These costs may seem minor as part of the big picture, but when it comes to a big purchase like a house, every penny counts. 

Luckily, there are some ways you can lower or even potentially eliminate some closing costs if you take the time to do some research and ask the right questions.

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How to minimize mortgage closing costs

Closing costs are fees and payments that you have to make to finalize the sale of your home and the start of your mortgage. Here are some of the expenses that are typically included in the closing costs:

• Lender fees: These costs are paid to your mortgage lender and can include things like origination fees, underwriting fees, points and appraisals.
• Title and settlement fees: These expenses are paid to the title company. This can include title insurance fees, search fees and recording fees.
• Pre-paid items and escrow costs: These fees are paid in advance and put into an escrow account for the mortgage company to pay out over time. This includes homeowners insurance, mortgage insurance and property taxes. 

The average closing costs will vary based on where you live, but you can generally expect to pay between 2% and 6% of your loan.

There are ways, though, to bring down your closing costs, or even eliminate them entirely.

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Negotiate with your lender

There is room for haggling when it comes to closing costs. You can ask your lender to eliminate some of the fees, such as an application fee or the origination fee. There is no guarantee that they will do it, but asking can't hurt.

Negotiate with the seller

You can also negotiate with the person you are buying the home from. If the housing market is hot where you are and the seller has many potential buyers to choose from, this might not work as well. 

On the other hand, if the seller is struggling to sell their home and really wants to get it off the market, you may be able to convince them to cover some or even all of your closing costs. All you have to do is ask — and be willing to walk away if the seller says no. 

"You can absolutely ask the seller to pay for closing costs," says Mary Petruzzi, a RE/MAX real estate agent based in Indianapolis. "It just depends on the situation. Sometimes you may need to pay a little bit more over [the asking price] to make it a wash for a seller."

Find a no-closing-cost option

The good news is that there are mortgages out there that have no closing costs. The bad news is that these don't actually eliminate closing costs. Rather, they simply move the closing costs into the loan principal and allow you to pay it off over time along with the rest of your mortgage. 

This means you pay interest on the closing costs as well, resulting in a higher total cost of the loan. If your down payment mostly taps out your savings, though, this could be an attractive option. It saves you money in the short term, which is sometimes what you need.

Shop around

One easy way you can save on closing costs is to look at different lenders. Each mortgage lender charges different fees, so looking at different options will give you an idea of how you can save on these costs. You may even be able to play lenders off each other to get a better deal. 

The bottom line

Closing costs are easy to forget about in the grand scheme of buying a home, but they can be a significant expense, especially if you are using a big chunk of your savings to make your down payment. However, there are ways to lower what you owe in closing costs, including negotiating, shopping around or trying to convince the person selling you the home to cover your closing costs themselves. All you need to do is put in the time and have a negotiating strategy in place.