If you’ve ever purchased or refinanced a home, you know that closing costs can get a little pricey. Usually, the total closing cost is nearly three percent of the home’s price; however, according to the Federal Reserve, some applicants pay up to six percent depending on their loan amount and location. Luckily, whether you’re a homebuyer or refinancer, there are three great ways to lower your overall closing costs.

Before we discuss the ways you can save, let’s talk about what exactly constitutes closing costs—and please reference our handy mortgage glossary for more information on any of these terms. Basically, these costs are the fees required by lenders for obtaining a mortgage. In addition to the standard expenses of credit report, appraisal, and title insurance transactions, there are several other costs that may vary depending on the applicant:

1. Location: This is the most widely varied factor, as closing costs are higher where the cost of living is higher. Certain taxes and fees may apply in some locations, as well. Inquire with your local lender to see if these apply to your area.
2. Loan discount points: Points are essentially prepaid interest that can lower your interest rate for the life of the loan. One point is frequently the same as one percent of the loan amount.

Upon closing, borrowers can also expect to pay two types of prepaids:

1. Homeowner’s Insurance: This cost covers possible damages to your home. The first premium is typically paid at closing.
2. Escrow deposits: In most cases, lenders will collect up to two months of taxes and insurance at closing.

Now, with a better understanding of closing costs it will be much simpler to begin saving. Check out this list of the three best tips and tricks to lowering your closing costs:

1. Close at the end of the month: By waiting until the end of the month to close, you can save more on prepaid interest. As an example, if you close on January 30^th instead of January 15^th, you will save 15 days of prepaid interest (or the interest you pay between closing and the end of the month).
2. When rates are low, make sure not to overpay loan discount points: Paying discount points can be beneficial for borrowers that plan to keep their mortgage for more than five years. If rates are low, however, you may not need to invest too much in them. Ask your lender for more information.
3. Ask the seller to assist with closing costs: If you are buying a home, a great option is to ask the seller to assist with closing costs—and don’t worry, this question is not uncommon.

No matter which method you choose to lower your closing costs, the outcome will be worth the extra effort. For more information about home financing, or to learn more about closing costs, contact one of our mortgage specialists today.