Welcome to the BeSmartee blog. Enjoy a wide selection of articles related to mortgages, the industry, and real estate.

5 Tips to Reduce Mortgage and Real Estate Closing Costs

By Veronica Nguyen · May 4, 2015 · Mortgage

5 Tips to Reduce Mortgage and Real Estate Closing Costs

Image courtesy of Flickr, Flazingo Photos

Closing costs for mortgage and real estate transactions are inevitable. Negotiate to reduce your closing costs using these 5 easy tips.

Closing costs are the total fees that you're charged to attain a new mortgage loan for a purchase or refinance. They can also be the fees you would be charged to buy or sell a home. Closing costs can vary, and in recent years, closing costs for mortgages have been on the rise due to the regulatory environment.

On average, closing costs for mortgages can range anywhere between 2% to 5% of the loan amount. Although closing costs are inevitable, there's no reason why you shouldn't try to reduce them.

The following are some tips to help you reduce your closing costs.

1. Negotiate with Your Lender

  • Courier Fee:

    These days, nearly everything is done online. Save yourself money by asking your lender to email you whatever documents they need to send you instead of sending you document packages. With the ability to do e-signings, you are able to sign documents from your computer or tablet without the need of printing documents, signing them, and faxing or mailing them back to the lender. Sending packages back and forth through the mail can delay the process by days.

  • Title Insurance:

    A lender or a realtor may recommend you to use a particular title insurance company, however, it doesn't mean you have to use them. Do your research to see if there's another title company you can find that will charge you less for the same services.

  • Application Fee:

    Negotiate the application fee with your lender and let them know you are serious about getting your mortgage through them. A lender will not want to lose your business for an application fee and will be more inclined to waive this fee to retain your business once they know you are serious.

2. Negotiate Your Realtors Commission

  • Ask your realtor if they can reduce their commission to list your property. Give them a good reason why they should. Typically a real estate brokerage will charge you 2% - 6% of the property value as a fee for their services. The buyers' agent's commission is included in this fee.

  • If you are the buyer, ask your realtor if they will credit you back some of their commission through escrow once the deal closes. Typical commission earned by the buyers realtor can be anywhere from 1% - 3% of the property value.

  • Offer to assist the realtor with marketing or do a private open house for your associates, friends and family to show them your home. You may find a buyer through word of mouth using this method.

In the end, the realtor may answer no to your request for a commission reduction or credit, but it never hurts to ask. It's important not to get hung up on this issue, especially if you are working with good realtor who can get the job done right.

3. Negotiate Closing Costs with the Seller

Having the seller contribute to your closing costs has become common practice for home buyers. Depending on the type of loan you're getting, the amount the seller can contribute towards closing costs can range anywhere between 2% to 9% of the purchase price.

The following are some of the closing costs the seller can contribute to on a purchase transaction:

  • Title Fees
  • Survey
  • Appraisal
  • Lenders Fees

Your realtor is the best person to talk to about how to negotiate the closing costs with the seller's agent. If the seller agrees to contribute to the closing costs, you cannot use the money for any other purpose, such as a down payment on the home.

4. Include the Closing Costs into Your Loan

You can reduce your "out of pocket" loan expenses by adding your closing costs to your loan amount. This is called a lenders credit. This option is ideal for borrowers who do not want to pay any closing costs out of pocket for any reason.

Your loan amount will increase when using this option. In addition, your lender may also charge you a higher interest rate due to this higher loan amount. Be sure to understand all of the implications involved in using this method by speaking with your realtor and loan officer before making your final decision.

5. Close Your Loan at the End of the Month

Did you know that closing your loan at the end of the month can save you on prepaid interest?

For Example:

If you decide to close your loan on May 15th, then you would have to pay daily interest charges for the remainder of the month. If you close your loan by May 30th then you only have to pay one day of interest.

On a 30 year fixed loan, at a 4% interest rate and a $300,000 loan amount, the daily interest charge would be approximately $32.26 for the month of May.

Take note that closing at the end of the month will only help you with your cash flow and not necessarily save you money. Also, the seller may want to close at a particular day of the month because they are buying another home. Look at your cash flow first before making this decision and don't hesitate to question your realtor and/or loan officer to for clarification.

Final Thoughts

Some of these negotiations may not always work, especially when the real estate or mortgage markets are very active. During these "hot" markets, lenders and realtors may be less inclined to offer discounts in order to gain your business. However, if you are able to negotiate the reduction of just one fee, you still come out a winner because the majority of people never even ask.

Real Estate Commission: Explained, Revealed and Compared
By Arvin Sahakian · Aug 17, 2015 · Real Estate Data

Real estate agents receive commissions from home buyers and sellers, collectively earning over $50 Billion per year. Learn how commission amounts are set, who pays them, and how they work in this article. Read more.


California Property Tax: Complete List by County 2014-2015
By Tim Nguyen · Nov 26, 2014 · Real Estate Data

List of secured property tax rates for all counties of California fiscal year for 2014-2015. Read more.


California Proposition 60 and 90: Your Complete Guide
By Tim Nguyen · Nov 28, 2014 · Real Estate Data

If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home. Read more.


Houston vs. Dallas: Which One is Better to Live in?
By Amanda Curry · Oct 11, 2016 · Real Estate

Houston Vs. Dallas? If you are considering moving to either of these major metropolitan areas, we've created a resource to help you make the decision process a little easier. Read more.


What to Expect During the Home Loan Closing Process
By Arvin Sahakian · Feb 24, 2015 · Mortgage

You've heard the term used before, but what does loan closing mean? Find out all you need to know about the process. Read more.


5 Illegal Borrowing Activities: Things That Are Illegal When You Try to Get a Home Loan
By Laura Agadoni · Jan 22, 2016 · Mortgage

Whenever there is money to be made or money to be spent, some unscrupulous folks will take advantage, trying to game the system or commit all-out fraud. Read more.


The Surge in Foreign Real Estate Investment in the United States
By Laura Agadoni · Feb 24, 2016 · Real Estate

Foreign real estate investment in the United States, both commercial and residential, is a huge phenomenon that is only expected to accelerate, maybe even to skyrocket, in 2016. Read more.


Does Homeowners Insurance Pay Off your Mortgage if the House is Burned Down?
By Amanda Curry · Feb 8, 2017 · Mortgage

In this article, we explore how homeowners insurance works and what happens in the event of a house fire. Read more.


16 Ways to Improve Your Debt-to-Income (DTI) Ratio
By Veronica Nguyen · Nov 29, 2014 · Mortgage

Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips. Read more.


6 Creative Financing Solutions For Your Next Home Purchase
By Laura Agadoni · Mar 22, 2016 · Mortgage

In this article we explore some creative financing options for your next home purchase. Read more.