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Tips for No Closing Costs

by Sarah Collins

In 2012, closing costs for a $200,000 home tallied up to an average of $3,754, according to Bankrate’s annual survey. New York has the highest closing cost average, while Missouri is the lowest, the survey found. The amount of closing costs can vary between lenders, and it’s difficult – if not impossible – to remove them entirely. However, home buyers can reduce their share of the financial burden by negotiating with the lender, putting the onus on the seller or rolling closings costs into their mortgage.

What’s Included

Closing costs, also known as settlement charges, consist of a variety of fees that must be paid to finalize a mortgage. After you apply for a home loan, the federal government requires the lender to provide you with a good faith estimate within three days. This details estimated closing costs so you have a general idea of what to expect; however, the final amount can vary by up to 10 percent, according to financial website Smart Money. Common fees can include, but are not limited to, real estate agent commission -- though that’s typically paid for by the seller -- loan origination fee, appraisal fee, points, advanced insurance premiums, closing fees, attorney fees, notary fees and title insurance.

Ask the Seller to Pay

The most common way for a buyer to avoid paying closing costs is to ask the seller to pay as part of your offer. However, because sellers have no legal obligation to do so, following certain tips makes it more likely for the seller to accept that offer. For example, make an offer at the full asking price, suggests financial website Money Crashers. This gives the seller some financial cushion to take on unexpected costs. In the same vein, avoiding making too many demands on the seller can make him more agreeable -- if he doesn't have to replace carpets or fix an HVAC unit, the likelihood of him covering closing costs goes up.

Apply for a No-Closing-Cost Loan

Although a no-closing-cost loan doesn’t mean that the closing costs are forfeited, it does mean you don’t have to pay for them the day of the closing. Instead, the closing costs are rolled into your mortgage and you pay them as part of your monthly bill. These mortgages tend to have higher interest rates.

Negotiate with the Lender

If you can’t eliminate closing costs completely, negotiate with the lender in attempt to reduce them to the bare minimum. Collect closing cost estimates from multiple lenders to determine who offers the best deal. Although fees that involve a third party, such as the title search or appraisal, typically can’t be negotiated, you might find that one lender charges more than others. If there’s a large discrepancy, ask why -- the lender might be padding the cost to increase profits. "Junk" fees can be negotiated with the lender, according to Smart Money; these include processing and documentation fees, underwriting fees and application fees.

About the Author

Sarah Collins has a Bachelor of Arts in journalism from Penn State-University Park and formal education in fitness and nutrition. Collins is an experienced blogger, editor and designer, who specializes in nutrition, fitness, weddings, food and parenting topics. She has been published in Arizona Weddings, Virginia Bride and on Gin & Pork and Bashelorette.com.