What to Do if You Can't Afford Your Mortgage's Closing Costs

When you get a mortgage, you generally need a down payment at closing. That down payment could be as much as 20% of your home's purchase price. It can be higher if you choose (though mortgage lenders generally don't require more than 20% down).

But that's not the only cash you bring to your closing -- you also have to come up with closing costs.

Closing costs are the various fees to finalize your home loan. They include, but definitely aren't limited to:

• Loan origination fees
• Appraisal fees
• Title search and insurance
• Recording fees

Closing costs are typically 2% to 5% of your mortgage amount. In 2021, average closing costs in the U.S. came to $6,905, including prepaid property taxes. Property taxes on homes are generally paid in advance quarterly, so when you sign a mortgage, you pay your prorated share. Without prepaid taxes, average closing costs in 2021 came to $3,860.

That's a lot of extra money to come up with at your mortgage signing, especially if you just managed to come up with your required down payment. If you're having trouble swinging those closing costs, here are some options to consider.

1. Roll your closing costs into your mortgage

Many mortgage lenders allow you to roll your closing fees into your loan rather than pay them upfront. The upside of doing so is that you don't need more money at closing. The downside is that this adds to your mortgage total, making your monthly payments higher. But think about it this way: If you're borrowing, say, $200,000 to buy a home and paying it off over 15 to 30 years, adding $5,000 or so to that figure isn't going to make a huge difference in your monthly payment amount.

2. Negotiate your closing costs

Some closing costs are non-negotiable. Your property taxes, for example, aren't determined by your lender -- they're determined by your town, and your lender doesn't get any of your advance payment. Similarly, all mortgages are recorded as a matter of public record, and there's a fee associated with that which your lender can't control.

On the other hand, there are certain costs you can ask your lender to reduce. For example, your loan origination and application fees are at your lender's discretion, so you can ask for a break there.

3. Cover certain costs yourself

To close on a mortgage, you need a title search to make sure you have the right to buy the home in question and that no one else has a claim to it. Your lender can take care of this for you, but if you're willing to do the work yourself, you might save a little money. Similarly, your lender may allow you to hire your own appraiser to assign a value to your home, and doing so could be cheaper than using your lender's appraiser. Make sure this is acceptable to your lender before going this route.

Closing costs can be an expensive part of getting a mortgage, so be prepared to handle them one way or another. It helps to know what your options are if you can't quite manage those fees by the time you're ready to finalize your home loan.

Still have questions?

Here are some other questions we've answered:

• What Documents Are Required for a Home Loan Application?
• How to Apply for a Mortgage
• Can You Roll Your Closing Costs Into Your Mortgage?