6 Ways to Save on Home Closing Costs

If you're thinking about buying a home, or in the process of doing it right now, you're probably counting your pennies as hard as you can. And for good reason -- it's super expensive to buy a home in today's market, so every bit you can save right now can make it easier to buy a house. Although you can't do much about a lot of the fees associated with buying a home, there are ways you can save on closing costs (or at least defer them until you're a bit better off financially).

I made you a short list.

1. Don't buy optional points

There are a couple of different kinds of points you can buy that are associated with your mortgage. Some are not optional, and others, like discount points, are. Discount points are basically a fee you pay to reduce your home's interest rate. Each point or fraction of a point reduces your interest rate by a set percent, based on your lender's internal rules.

Although it may be really tempting to buy discount points for your mortgage right now, it takes several years for them to pay for themselves, and in the meantime, you have to fork out the cash to cover them. If you're cash thin, skip the points. You can refinance later if rates drop.

2. Pay for inspections out of pocket

Your closing costs are made up of all kinds of different fees that are collected by your closing company and bundled together. Sometimes, home inspectors will let you pay their fees at closing, or your real estate agent may already have a deal set up with their favorite home inspectors so this is the default.

The average cost of a home inspection for a 1,500 square foot home in the United States is $413, which can add a big chunk to your closing costs if paid at closing. Arrange to pay the inspection fee with funds you have on hand (do not put it on a credit card, as this can mess up your debt-to-income ratio, as well as your ability to get a mortgage).

3. Get several insurance quotes

Since you generally have to prepay a few months of your homeowners insurance at closing to establish your escrow account, the cheaper your insurance, the less you'll pay for it. This, by no means, implies that you should cut corners or get sketchy homeowners insurance, but you should definitely shop around. There are lots of different homeowners insurance companies out there that rate customers on different factors to determine their risk, and some will give you a much more favorable rate than others.

In addition, moving your home and auto to the same insurer can score you discounts on your homeowners policy, and being a member of certain organizations will also help you earn more discounts. For example, I used to get a 10% discount for being a member of the National Association of Realtors.

4. Close at the end of the month

There's a lot of debate about when is the right time to close your home's loan, and there are a lot of different reasons why certain times of the month are right for certain buyers. But you're a buyer who needs to minimize your closing costs for whatever reason, and that means that you need to close at the end of the month.

Mortgage payments are always paid on the first of the month, so when you pay a prorated portion of the mortgage at closing, you're paying from that day to the first of the month. The less of that month left, the better. Since mortgage interest is calculated daily, the fewer days, the less you have to pay at closing. It's a bit more complicated than this, but the main takeaway is that closing later in the month is cheaper.

5. Get first-time home buyer assistance for closing costs

In many states, you can qualify for closing cost assistance if you're a first-time home buyer, and in some cases, even if you're not. This assistance comes in a lot of forms, including as "soft" or "quiet" second mortgages that follow your home, but you don't have to pay until you sell. The terms of many of these first-time home buyer assistance programs are such that if you stay in your home for a set number of years, the second mortgage is forgiven, and essentially becomes a grant.

If money is tight but you really need to buy a home, these programs can really change your trajectory. They're not always the easiest to qualify for, and they don't always cover all your closing costs, but the amount you'll save on closing day can be tremendous.

6. Ask sellers to pay

If the problem you have with your closing costs is that you simply can't afford them and your down payment, another solution is to ask the sellers to pay for your closing costs as part of the initial offer. This is completely legal and is allowed under most mortgage programs, up to a certain percentage of the property's price. There's a caveat, of course -- your future home has to appraise for enough to cover both the amount that your seller wants to cash out of the home, plus the additional closing costs that you're essentially including in the loan.

This is the most expensive way to reduce your closing costs in the long run, because you'll be paying interest on them for as long as you have the loan, but it can be a good solution for someone who is in a tricky spot. Understand that you won't win a bidding war by asking the sellers to pay your closing costs, but if you're in a less competitive market, this is still a potential solution. Ask your favorite mortgage lender for more information on how much you can ask the sellers to pay on your behalf.

You can save money on closing day

Closing day can be really expensive, and the thought of taking on a new mortgage loan can be terrifying, but there are a lot of ways to minimize how much you have to give up on that big day. Just make sure that you understand the risks and requirements involved with different ways of reducing your closing costs before you commit to them.