Ask the Egghead: How can I reduce my closing costs?

Dear Egghead: I’ve heard that closing costs can be as high as 5 percent of the home’s price. With a $500,000 home, those costs would total $25,000, which sounds outrageous. Can I reduce my closing costs, and how?

Answer: The level of closing costs depends on the price of the home, its location, and whether you’re buying or refinancing. The average tab nationwide was $6,900 last year, and $2,380 for refinancers. Costs are especially high in the northeastern U.S. and tend to be lower in the interior of the country.

Your lender should provide an estimate within three days of your completed loan application.

Everything is negotiable, including closing costs. As the housing market has cooled, the potential for cutting your closing costs increases by negotiating seller concessions that effectively cut your costs.

For example, many lenders may nickel and dime you for several fees:

  • Origination fee
  • Underwriting fee
  • Rate lock fee
  • Processing fee
  • Loan officer commission

Shop around for a lender who has the most reasonable fees. Likewise for homeowners insurance and title insurance. Fees for termite inspections can vary widely. And take a hard look at credit report fees and appraisals, the fees vary.

You can ask the seller to cover part of your closing costs, especially with highly motivated sellers, and those whose properties have been on the market for more than a few weeks without attracting many offers.

Some lenders will allow you to roll your closing costs into the loan. This increases the amount you’re financing, but of course it reduces the amount of cash coming out of your pocket at the closing table.

Here’s a rundown on average closing costs across the country that was featured on Business Insider.

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