4 Ways to Save on Closing Costs

Closing costs for a home average 3% of the purchase price — and go as high as 6% in higher-tax areas. Plus, for most loans you must still come up with a down payment of at least 5%. But you can use the following strategies to reduce the pain:

Have the seller pay closing costs

You can hit up the sellers for some or all of your closing costs. You even get a tax break for mortgage points the seller pays (each point is 1% of the loan amount).

Be careful, though. If the sellers have already slashed their price to the bone, they may tell you to take a hike. If the sellers won't play ball and you don't have enough cash for closing — but you can afford a larger mortgage — it may make sense to bump up the price you pay for the home and have the sellers use the extra money to pay closing costs for you.

Note that there are built-in limits to a seller's generosity: Freddie Mac and Fannie Mae allow sellers to pick up closing costs worth 6% of the purchase price for loans with 10% or more down; the Federal Housing Administration allows up to 6%; and the Department of Veterans Affairs allows 4%.

Shop loan terms

The "no-cost" mortgage, which rolled most closing costs into your interest rate, has largely disappeared, and lenders have resurrected fees for everything.

Charges vary dramatically, so it pays to shop around and negotiate on all the loan terms, not just the rate. Borrowers have regained muscle as the market has become more competitive.

Call three or four lenders for their best rates (preferably without points) and an estimate of their fees (excluding third-party charges and escrowed amounts for taxes and insurance). Apply with the lender that's offering the best deal to get a good-faith estimate. If you're willing to pay more than one application fee, get two estimates and play the lenders against one another. If you're refinancing, your current lender may offer a discount on fees.

Pay less for PMI

If your stake in a home is less than 20%, you must ante up for private mortgage insurance. Monthly premiums for PMI typically cost 0.5% to 1.5% of your loan amount per year, depending on how much equity you have, your credit scores and whether you get a fixed or adjustable-rate loan.

You could negotiate with the seller to pay a single premium upfront, or you could roll that single premium into your loan.

Find cheaper title insurance

Title insurance protects against challenges to your ownership, with separate coverage for your lender and for you. But as much as 80% of the premium goes to paying commission to a title agent. You can shop for cheaper title insurance, sometimes even online.