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How To Avoid Closing Costs On a Home – Be Smart

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miniature home with house keys sitting on a pile of cash on a white surface

According to a study by Fannie Mae, the average closing costs paid by all buyers amount to 6.4% of a home’s purchase price.

This statistic is bound to make any prospective home buyer or seller wonder how to avoid closing costs to save money on real estate transactions. 

Unfortunately, there are no quick fixes on how to avoid closing costs when buying a house or selling one. Yet, there are a few things you can do to reduce them. These tactics vary depending on whether you’re buying or selling and will involve a degree of negotiating.

Keep reading for tips on how to avoid paying closing costs, or at least reduce them considerably. 

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Typical closing costs on a home sale

You can’t figure out how to avoid closing costs on a home unless you know what they are. These are the most common closing costs involved during the home-buying process:

  • Mortgage costs
  • Title and settlement fees
  • Home appraisal and inspection fees
  • Home warranty
  • HOA fees
  • Homeowners Insurance
  • Prorated property taxes

Sellers are on the hook for the following expenses involved in a sale:

  • Real estate agent’s commission 
  • Pre-listing inspection costs, if required
  • Transfer taxes in your state
  • Prorated property taxes
  • HOA transfer fee
  • Capital gains taxes, if applicable

These costs can add up to take a sizeable chunk out of your profits as a seller. In some states, closing costs may add up to as much as $29,888. 

How to avoid closing costs when buying a home

Most of your options for reducing closing costs as a buyer revolve around negotiation, or shopping around for better prices. These are some things you can try:

Analyzing your loan estimate form

Your lender must provide you with a loan estimate within three days of your application. When you receive this form, go to page two and look at ”services you can shop for”. 

These include surveying, pest inspection, title search, settlement agent, and insurance binder fees. In this section, the bank lists its preferred vendors, but you can choose your own, lower-priced providers if you want to. 

In some cases, the seller will choose these service providers, so you’ll need to negotiate with them if you want any changes. 

Negotiate lender fees

Most lenders charge loan costs for underwriting and origination. You can ask for a discount on these prices or shop around for more favorable estimates before you commit. 

Search for grants

Explore closing cost assistance programs in your city, county, and state. These apply to qualified buyers, especially first-time homeowners. 

Union members, military personnel, and veterans may also qualify for closing-cost discounts and rebates via these organizations. 

Time your closing to coincide with month end

By closing at the end of the month, you reduce your cash outlay on the day. That’s because you’re reducing the number of days that attract per diem interest before paying your first mortgage payment, which is usually the first of each month.

Multiply your loan amount by your interest rate and then divide that figure by 360. When you multiply the number of days left in the month and add one. From this, it’s easy to see how the day of the month can impact your total costs.

Ask for rebates and discounts

If you don’t ask for them, you won’t enjoy any savings. Always inquire about mortgage loan incentives that could save you money at closing. 

Always approach your current bank first when applying for a mortgage. Some lenders offer loyalty programs for existing customers that may offer reduced loan origination fees.

How to avoid closing costs when refinancing a home

Many of the same home-buying tips mentioned above apply to refinancing a mortgage, too.

You can also ask your lender about a ”no-closing-cost refinance”. This means, you won’t pay any closing costs at the closing table, but you will pay more on your mortgage over time, as your lender will charge you a higher interest rate.

This strategy works best if you don’t plan to stay in the home for more than five years, or if you plan on refinancing again. 

How to reduce closing costs by negotiating with the seller

In a seller’s market, buyers often offer to pay more of the closing costs to entice the home seller to choose their offer.

Yet, during the recent boom in property prices, sellers have become more amenable to waiving some closing costs due to the high profits they’re realizing.

Buyers and sellers can negotiate the following closing costs to help either party save money:

Settlement fees and title fees

In most cases, the buyer and seller halve the costs associated with hiring a title company, real estate attorney, or escrow company to handle the paperwork.

The parties can negotiate so that either the buyer or seller pays these fees in full. 

Usually, the seller pays title fees to cover insurance policies surrounding the sale of the house, while the buyer covers their lender’s insurance costs. In some states, the parties can negotiate about who pays these fees. 

Home warranties

Buyers may insist on a home warranty to cover any issues that could occur within their first year of occupation, but they needn’t leave it up to the buyer to choose this option.

By shopping around, and working with the provider of their choice, buyers might find a cheaper option that covers their needs.

Property taxes

Buyers and sellers pay prorated property taxes for the year based on how long they occupy the house. It’s common for buyers and sellers to negotiate which portion each party pays.

Agent’s commission

Typically, the seller pays both the seller’s and the buyer’s real estate agent’s commission. You can negotiate with these professionals to take a smaller amount of the sale price. 

Rookie real estate agents may offer to work for a lower commission, although in some cases their inexperience may lead to the home selling for less than expected. 

How to avoid closing costs when selling a house

As a seller, you can save some money on closing costs by selling your home yourself. If you go this route, you will avoid paying real estate agents’ commissions.

Selling your home on your own is filled with pitfalls when you do it the usual way. Selling to a cash buyer poses fewer hassles and risks. 

With a cash sale, you’ll likely avoid the tedious processes and costs involved in home appraisals and inspections, as lenders usually insist on these procedures before they’ll grant the buyer a mortgage.

Appraisals can also affect whether the buyer will achieve a mortgage, as well as the amount they borrow against.

If you’re wondering, “do appraisals usually come in low?”, Fannie Mae’s studies suggest this happens less than 8% of the time. This can lead to the offer on your home falling through.

If you don’t want an appraiser to dictate how much you sell your home for, and jeopardize your sale, selling to a cash buyer is the best option for you. 

Other areas of a cash sale that can impact closing costs include:

Expensive repairs

Most cash buyers are willing to consider homes for sale in less-than-perfect condition. So, while you may receive a lower price for your home, you could save thousands on repairing your roof or replacing your HVAC system.

Sellers don’t need to pay for staging costs or deal with the inconvenience of hosting an open house event, either.  

A convenient sale

There are fewer uncertainties involved in a cash home sale. Most cash buyers are flexible when it comes to your move date.

This allows you plenty of time to find alternative accommodation, pack, and move. 

Fast closing times

Cash buyers don’t need to work according to lenders’ timelines, as they needn’t wait for mortgage approval. In many cases, the seller can choose a closing date that suits them and get cash for their home much faster.

This is an ideal scenario for those who need to move fast, sell their home quickly, or get rid of an unwanted inherited property. 

Skip closing costs

Cash buyers are often keen to get their hands on properties, so they can re-sell them or rent them out.

These buyers know that distressed sellers often don’t have the funds to pay the closing costs upfront. This means they may consider paying the seller’s closing costs to expedite the sale.

Skip the hassles and extra costs

If you want to know how to avoid closing costs on a home easily, one of the best tips is to sell your home to a cash buyer. 

iBuyer can put you in touch with a host of qualified buyers almost instantly. There are no home inspections involved, and you won’t have to pay any agent’s commission.

By accepting a slightly lower price for your home, you’ve also got a better chance of avoiding capital gains tax on your sale.

Enter your home address on our website to receive a cash offer on your home and get the process started.

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