1. Who to Borrow Money from…Shop Your Lender

The mortgage industry is a competitive one, but most lenders have some wiggle room in terms of the fees they pass on to you. One of the easiest ways to cut your closing costs is to shop your lender, and to carefully compare the loan estimates. Lenders charge loan costs, including those for loan origination and underwriting. To lower the origination fee, you can ask the lenders if there are any aspects of it that can be waived, such as the application or processing fees. Some lenders will bundle application and processing fees into the loan origination fees, while others won’t. Ask for more obscure fees to be knocked off the bottom line. Knowing the competitor’s rates and fees will give you the power to approach your preferred lender to see if they will match the best rates, or give you an even better deal. Be wary if a lender offers you a credit to go toward closing costs, as often times, the tradeoff is a higher interest rate over the life of the loan.

2. Break Down Your Loan Estimate, Line-By-Line

Once you have chosen a lender, they will provide you with a “Loan Estimate Form” detailing what your estimated closing costs will be. Some of these fees are negotiable, some are not. When you get the Loan Estimate, take the time to go through each line item with the lender, verifying what each fee covers, and why it costs what it does. This is also a good way to identify padded or unnecessary fees, as well as duplicate fees where you may be charged twice for the same function. A common example is processing fees vs. underwriting fees.

3. Ask About Grants, Discounts, and Rebates

Different cities, counties, and states have financial assistance programs for qualified homebuyers. Start in your municipality by contacting agencies that are likely to have an up-to-date list of such programs. The key is to do the necessary research to make sure you get everything you are entitled to.

• First-time homebuyer loans (these programs typically help with down payment and closing costs).
• Some lenders offer rebates and incentives to attract borrowers. These rebates can knock down various costs a few hundred dollars, easy money for the time it takes you to ask.
• Look for a loyalty programs. Some banks offer help with their closing costs for buyers if they use the bank to finance their purchase. It's the bank's way of offering a reward for being a customer.
• Military members have closing-cost benefits that are often overlooked.
• Service members and veterans may qualify for funds to help them purchase a home. These benefits are not limited to the VA loan.
• Union members can get help purchasing a home with closing-cost discounts and rebates from the Union Plus Mortgage program.
• Americans with lower incomes can apply for an FHA (Federal Housing Administration) loan, a government-backed mortgage.

4. Understand What the Seller Pays

While the buyer is obligated to cover a majority of the closing costs, the seller is typically required to pay the real estate agent commission. But, depending on the market and the seller’s motivation, you may be able to negotiate a lower sale price on the home to offset the costs, or they may be willing to cover some of the additional fees. Most loans allow sellers to contribute up to 6% of the sale price to the buyer as a closing-cost credit, reflected as “seller credits” on the Loan Estimate form. It's a good way to seal the deal, and a tax-deductible expense for the seller. However, getting help from the seller isn't always easy in a hot seller's market.

5. Shop and Compare New Vendors and Homeowner’s Insurance

The vendors listed on the Loan Estimate form are your lender’s preferred vendors, but you don’t have to use them. Do your research, and see if you can find less expensive options. A few of these services may include the pest inspection, the survey, title search, etc. You should do this as soon as possible because, once you hire them, these vendors will need time to prepare the necessary paperwork. Finding more inexpensive vendors could save you hundreds of dollars in closing costs.

In addition, homeowner’s insurance is one of those things that every lender is going to require, but whether or not you get it through them can save you money each month. Get at least three quotes, making sure to use the same coverage amounts. It'll reduce your closing costs and save you money long-term on your insurance premiums.

6. Close at the End of the Month

As a buyer, one of the simplest ways to reduce your closing costs is to schedule your closing toward the end of the month. Mortgage interest is collected in arrears, and with a new home loan, you will prepay interest that accrues from the closing date to the end of the month. Closing at the end of the month can save on prepaid interest. The fewer days left in the month, the less upfront interest that’s due at settlement, and the less cash you will have to bring to the table.