Closing costs are one of the factors that might dampen the thrill of buying a new house. As you inch towards closing, you might get stressed about soaring expenditures and a myriad of closing costs. We are sure you would like to keep these costs low or get them completely waived. But you might now be thinking, is it even possible to waive closing costs?
Read further to know more about how can you get closing costs waived.
Closing Costs Definition
Closing is the phase of a property transaction in which the ownership of the house is formally transferred from the seller to the buyer.
Some of the expenses that are included in settlement costs are processing fees, transfer fees, title fees, inspections and others. However, these costs may differ based on where you live and the type of property you are purchasing.
Who Pays Closing Costs?
Both buyer and seller have to pay closing costs. A buyer always has to pay a few more expenses compared to sellers closing costs. The seller after finalizing a property deal can get good returns if they consider closing costs. But both seller and buyer will be surprised to know the closing costs they’re supposed to pay.
How Much are Closing Costs?
Your exact closing expenses depend on various factors such as the market condition and location of your house. Seller’s closing costs can usually amount to 8% to 10% of the sale price, not including mortgage payoff. While buyers closing costs could amount to 2% to 6% of the purchase price.
Sellers Closing Costs
Sellers closing costs can be categorized into property, mortgage, administrative fees, and HOA fees. Listed below are some major closing costs for sellers:
- Home Inspection fee
- Owner’s Title Insurance
- Mortgage Payoff
- Real Estate Agent Commission
- Government fees and real estate taxes
Buyers Closing Costs
A buyer also has to pay some junk fees which are basically extra expenses charged by mortgage lender. These are typically too much, but buyer can challenge some of the junk fees. Among them are application fee, loan origination fee, underwriting fee, courier fee. Listed below are some of the major closing costs for buyers:
- Title Insurance fee
- Homeowners Insurance
- Private mortgage insurance
- Property tax
- Recording fees
Is it Possible to Avoid Closing Costs Completely?
No, you cannot avoid or get closing costs completely waived because the expenses it covers are a necessary part of real estate transactions. Without paying for closing costs you can not transfer the ownership of the property.
The last resort to avoid the myriad of expenses for buyer is rolling closing costs into the loan by opting for a ‘no closing cost mortgage’. When you opt for the ‘no-closing-cost mortgage’ it actually doesn’t waive off your closing costs completely. You’ll have to cover them in some way.
Although it is not possible to completely avoid closing costs, you can strategize in such a way that would lessen your burden of expenses.
Can You Negotiate Closing Costs?
Yes – both seller and buyer can negotiate closing costs.
Depending on the market condition seller can ask buyer to cover few closing cost expenses. If it is a seller’s market they can easily negotiate the closing expenses.
Buyer can negotiate a few expenses with the seller and lender. Each lender has a separate set of costs and charges. When you are shopping for a lender, make sure to ask questions. At this stage, you can negotiate flexible down payment terms. Buyers and sellers sometimes may agree to a trade in which the seller covers closing costs.
How to Reduce Closing Costs?
Now that you know it is impossible to get closing costs waived, but finding ways to reduce them could help you save some amount of money. There are ways you can actually reduce settlement costs.
For Sellers
1. Opt for a discount broker or a flat fee realtor
Compared to traditional brokers who charge 6% of the sales price as commission, discount real estate brokers only charge 3%-4% of the sales price for their services. In fact, some low commission realtors offer higher concessions if sellers choose them as their buyer’s agents for their next real estate purchase.
2. Choose “For Sale By Owner” (FSBO)
Sellers can save up to 3% real estate agent commission and cut several costs by opting for “For Sale By Owner” services. Houzeo offers services like Flat Fee MLS for FSBO sellers that list properties on the MLS and make the selling process easier and smoother. What’s more, if the buyer is unrepresented, with Houzeo, sellers can sell their homes for zero realtor commission charge!
» For Sale By Owner Websites: Check out the best FSBO websites in 2023
3. Research and compare
Sellers can save on closing costs such as attorney fees, home inspection fees, and escrow fees by researching and comparing more affordable services to find the one most suitable for them.
4. Ask the buyer to cover seller closing costs
Buyers may agree to cover the seller’s closing costs if the market is competitive and fewer houses are in the market. On the other hand, sellers can raise the listing price to cover full or partial closing costs.
For Buyers
1. Opt for a rebate program
Some real estate brokers offer buyers incentives like rebates that help lower their closing costs and/or buy down the mortgage interest. Real estate agent services are free for buyers as sellers pay the agent commission for both parties.
2. Give a solid offer
Present an attractive deal to entice the other party to cover some of the closing costs. An irresistible offer, although it doesn’t mean more proceeds, can reduce expenses. The better the offer, the more they’ll want to accommodate the deal. Hence, there’s a great chance the seller will pay the added cost to keep the transaction easier and quicker.
3. Minimize requests
Making demands can make the deal slow and troublesome for both parties. Hence, buyers should make minimal requests so the seller will be more willing to cover some of the closing costs. If there are too many inconveniences, the seller may question the genuineness of the buyer and feel the need to back out.
4. Make it quick and hassle-free
Most of the sellers aren’t happy dealing with the lengthy transaction. As much as possible, buyers must keep the transaction straightforward without beating the bush.
5. Research and compare
Buyers can save closing costs by carefully comparing and choosing the best lender for their situation according to their fee and mortgage rate. Additionally, they can opt for economical insurance providers, pest inspection services, and lead-based paint inspection services.
6. Ask the seller to cover closing costs
Depending on the market conditions, the buyer can negotiate the deal with the seller by requesting them to cover some of the buyer’s closing costs or offer credits towards closing costs.
Negotiable Seller Closing Costs:
Mentioned below are seller closing costs that are negotiable.
1. Owners Title Insurance
Owner’s title insurance is an optional expense that can be negotiated as to who pays it. In some cases, the seller might foot the bill for this insurance to attract buyers and guarantee a clear title.
2. Real Estate Agent Commission
You can negotiate with your agent as the 6% commission rate is not set in stone. The seller should shop around and inquire the specifics of what you will receive from each agent.
Non-negotiable Seller Closing Costs:
Mentioned below are seller closing costs that are non-negotiable.
1. Property Tax
You cannot negotiate property tax because you have to pay this to the local government. The seller is responsible for paying property taxes up to the closing date.
2. Transfer Tax
Seller cannot negotiate on transfer tax because the documentation helps to transfer the house to the buyer.
3. Homeowner Association Fee
You cannot negotiate HOA fee because they are governed by your State’s HOA or Condo Act.
Negotiable Buyer Closing Costs:
Mentioned below are buyer closing costs that are negotiable.
1. Lenders Insurance
When you are in the home-buying process, your lender will require proof that you have obtained homeowners insurance. This will protect both buyer and mortgage lender. To make sure you avail the best insurance, you can shop and check prices from several providers.
2. Mortgage Points
Mortgage Points which is also known as discount points are upfront fee that buyer has to pay to avail lower mortgage interest rate. If you do not wish to spend much on upfront fee, you may apply for lender credit where you will save some money, but the rate of interest would be higher.
3. Loan Origination Fee
When you are in the process of home buying and your mortgage has been approved you are supposed to pay upfront loan origination fee. The lender charges you this particular fee to process the loan. You can request your lender to reduce or eliminate this cost.
4. Application Fee
This is a one-time expense that is charged by the lender to process and underwrite your loan. You can surely negotiate this fee. However, you must know that all lenders do not charge application fees.
5. Title Insurance
You must purchase title insurance because a title search is must to confirm that you are obtaining a clear title when doing a real estate transaction. This insurance acts as a protection for lender if someone tries to claim they have a right over the property.
You can negotiate with your lender and suggest them to opt for an inexpensive title company, but they are not obligated to comply with your recommendation.
Non-negotiable Buyer Closing Costs:
Mentioned below are buyer closing costs that are non-negotiable.
1. Appraisal Fee
An appraisal fee includes charges of appointing an appraiser who’ll assess your home and calculate its fair market price. This is an inevitable fee that a buyer must cover.
2. Credit Reporting Fee
As a buyer when you apply for a home mortgage, your lender will always check your credit score. This helps the lender to gauge whether you will be able to pay back the loan. The costs for this service can not be negotiated.
3. Courier Fee
This fee is charged for expenses incurred while sending important documents related to a property purchase to different parties. The buyer has to pay this fee and it is non-negotiable.
4. Government Fee
While you are in the process of buying a property there are several fees you have to pay one of which is government fees. These fees include recording fee and transfer tax. All these fees are usually paid to the local government. There is no chance that you can even try to negotiate on these closing costs.
5. Property Tax
At the time of closing a real estate transaction, you have to pay in advance for property taxes. But the cost would vary as per your location, but you will have to pay something. This is valid only if the buyer has taken a mortgage. Lenders make buyers deposit property tax to ensure that they are not defaulting.
Bottom Line: Are Closing Costs Negotiable in 2023?
Yes! you can surely negotiate closing costs and save some bucks on cost of your house. However, the market sentiment and location of your house will determine how well you are able to bargain on the costs.
Before you begin your hunt for the dream home, it is important that you have financial backup to cover the closing costs. Knowing that you can cover the expenditures will give you peace of mind, and any money you save will be cherry on top.
» Houzeo Reviews: Is Houzeo the best option for you? Read on!
Frequently Asked Questions
What if I can't afford closing costs?
Buyers can roll closing costs into a loan if they can't afford to pay them up front. Sellers can pad the price of the house or they can borrow from someone.
Can lenders waive closing costs?
Lenders can waive off closing costs like origination fee and underwriting fee.
Can I roll closing costs into my conventional mortgage?
Yes, you can definitely roll closing costs into a conventional mortgage.
Related: paid closing costs, closing statement, closing cost percentage, closing cost assistance, closing statement real estate, home closing costs
Also Read
How to Sell My House Fast: Here’s how you can sell your house fast and for more cash.
Cash Home Buyers: If you plan to make an all-cash offer for a quick sale, then companies that buy houses for cash is the best option .
How To Sell a House By Owner: If you’re considering to sell your house on your own, check out this guide to help you through the process.
How To List on the MLS: You can list your house on the MLS yourself without having to hire a real estate agent.
For Sale By Owner Contract: Check out how to create a contract for an FSBO transaction.
Selling a House: Selling a house in the US is a stressful process and requires a good understanding of the real estate market.
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