All of the costs incurred in the course of purchasing or refinancing a home are called “closing costs.” They include fees that you pay the lender, most importantly the origination fees, but other fees as well, such as appraisal, title, and recording fees.
Closing costs are usually paid from the borrower’s funds, but often you can lower them with seller credits. As well, your lender may agree to waive some of your closing costs. Sellers are often willing to cover some of your closing costs in exchange for a slightly higher purchase price, and lenders may waive some closing costs and charge a slightly higher interest rate.
Seller credits and trade-offs
These may sound great, but note that a higher home price and a higher mortgage rate will cost you more in the long run. When you begin the prequalification process, consider these “benefits” but ensure you know the downsides. Your real estate agent can help you decide the true worth of a sellers’ credit, while your lender can explain all the mortgage options available to you, including trading a higher rate for reduced closing costs. The decision, however, is yours.
Your down payment is also required at closing, and it’s the one cost that absolutely can’t be reduced by seller or lender trade-offs. Fortunately, you can use monetary gifts from close relatives to partially or completely reduce the down payment amount that comes out of your own funds, and you’re also able to use approved government or other nonprofit down payment assistance programs.