How to get closing costs waived: Can I negotiate?

Smiling woman taking a selfie with her new house keys in handImage: Smiling woman taking a selfie with her new house keys in hand

In a Nutshell

If you want to save on closing costs when buying a home, you have some options. Getting closing costs waived can help you spread out the cost of these fees.
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Buying a home is a major financial undertaking.

From the down payment to the everyday expenses that follow after you get the keys to your new place, it can be very expensive to buy a home. One potential area where homeowners may be able to save is on their closing costs.

It’s possible to negotiate lower closing costs or to roll those expenses into the loan. Keep reading to learn how to get closing costs waived and to understand the financial implications when you do it.

What are closing costs?

Closing costs are fees you pay when you take out a mortgage to buy a home. The fees you pay as the buyer when closing on a home go toward paying the third parties involved in the transaction, including your mortgage lender.

Closing costs can include the following fees:

  • Appraisal fees
  • Title services
  • Credit report fees
  • Lender origination fees
  • Government recording costs
  • Tax service fees
  • Survey fees
  • Underwriting fees
  • Attorney fees

Generally, the buyer pays all closing costs. But buyers can have the seller give them a “credit” to put toward their closing costs — typically resulting in the seller raising the price of the home to cover the costs. So instead of paying the closing costs upfront, the buyer gets them added to the loan amount.

Lenders can also offer to issue a credit to help with closing costs — either increasing your loan amount or charging you a higher interest rate in exchange for the credit.

How much are closing costs?

You usually pay about 2% to 5% of the home’s purchase price in closing fees. Alongside the overall cost of the house, the following factors can affect how much you spend on closing costs:

  • Home location
  • Home size
  • Down payment amount
  • Loan amount
  • Loan term (length of loan)
  • Annual property tax payment
  • Annual homeowners insurance cost
  • Interest rate

To get an idea of what you could spend in closing costs, you can use the Credit Karma Closing Costs Calculator.

Can closing costs be negotiated?

It’s possible for buyers to negotiate certain closing cost fees. You have the option to negotiate the terms and costs associated with your mortgage until you officially close on the loan, but neither the lender nor seller have to agree to lower any costs. That being said, it doesn’t hurt to ask. Some mortgage fees are easier to negotiate than others.

Typically, you’ll have better luck negotiating fees your mortgage lender is charging instead of fees that come from third parties. That’s because the lender typically pays fees to third parties at a set price, and they don’t have the ability to negotiate those rates down. So it’ll be tougher to get a deal on …

  • Appraisal fees
  • Tax service fees
  • Credit report fees
  • Flood certification fees

How to reduce or waive closing costs

If you want to try to reduce or eliminate certain closing costs, such as lender fees, these are some options.

  1. Buy lender credits. When you use lender credits, you reduce your closing costs but agree to pay a higher interest rate in exchange. This increases the overall cost of your mortgage.
  2. Ask for a no-closing-cost mortgage. If a mortgage loan doesn’t come with lending fees or closing costs, this can save you money upfront. But that usually means the lender will charge you a higher interest rate or tack the closing costs onto your mortgage, resulting in a higher total loan.
  3. Apply for an FHA loan. FHA loans offer lower down payment requirements and low closings costs to qualified buyers.

What’s next?

Before you even start shopping for a home, it’s a good idea to get an idea of how much you’ll spend on closing costs by using a closing cost calculator.

It’s also a good idea to take some time to assess your financial situation so you can get a clear idea of how much of a down payment you can afford to make, what type of mortgage payment can fit into your budget, and how much you need to save for closing costs. You also need to budget for the ongoing costs associated with homeownership such as property taxes and homeowners insurance.

One way to save on mortgage and closing costs is to shop around for quotes from different lenders early in the process. That way you can get an idea of which lender will offer you the best interest rate for your situation and the lowest fees. Don’t forget to include government-backed loans like FHA loans in your search — as these can come with more-favorable interest rates and lower closing costs.

You may also find that a first-time homebuyer program can make it easier to afford your first home.

About the author: Jacqueline DeMarco is a freelance writer based in southern California who graduated from the University of California Irvine with a degree in literary journalism. She writes about a wide range of topics, including fin… Read more.