• Closing costs are the fees and expenses paid at the end of a real estate transaction, covering services required to finalize the sale and transfer ownership. For homebuyers, closing costs typically fall between 2% and 6% of the home’s purchase price.[1]
  • You may be able to reduce closing costs by negotiating lower fees with your real estate agent, lender, insurance company, home inspector, home appraiser, and other related professionals. 
  • If you can’t afford closing costs after negotiating for lower rates, consider applying for closing cost assistance programs or grants or using alternative funding methods, such as seller concessions, lender credits, or financial gifts from family. 

Managing the costs of buying a home can be a delicate balance. On one hand, paying more upfront can help reduce your overall expense. For example, a higher down payment can earn you a lower interest rate and loan balance, reducing both your monthly payment and total interest over time. On the other hand, buying a home requires a substantial upfront investment, and saving enough to cover these costs can be difficult. 

So what happens if you can’t afford the closing costs to buy a home? Is there anything you can do to reduce closing costs or cover them through another means?

In this article, we’ll provide actionable tips for reducing closing costs, applying for closing cost assistance, and finding potential alternatives for funding your closing costs. 

But first, here is a brief overview of closing costs for homebuyers.     

What Are Closing Costs?

Closing costs are expenses incurred to complete a real estate transaction, covering the services and fees required to originate the loan and transfer the property from a seller to a buyer. Both the buyer and seller pay closing costs, but the amounts owed and items covered by closing costs are different for each party. 

Typically, buyers pay closing costs for items like:[2]

  • Loan origination: The administrative process of opening a new mortgage loan.
  • An appraisal: An estimate of the home’s value, as determined by a real estate appraiser. 
  • A survey: The process of verifying property boundaries.
  • The title search: An examination of property records to make sure the chain of ownership is clear and free from outstanding claims, such as liens, unpaid taxes, or legal disputes.
  • Escrow fees: The cost of opening an escrow account to accept the earnest money deposit. 
  • Homeowner’s insurance: The required insurance policy that provides financial protection in case of sudden damage or loss due to qualifying events like storms, fire, or theft. 
  • Homeowners Associations (HOA): Governing bodies that oversee HOA communities and charge property owners for common area maintenance.

For a more complete explanation of closing costs, including details on seller’s closing costs, check out What Are Closing Costs and How Are They Calculated?

You can also establish a closing cost estimate for your home purchase using an online closing cost calculator. 

What If I Can't Afford Closing Costs?

Some homebuyers struggle to pay closing costs in addition to their down payment, moving expenses, and any time-sensitive repairs or renovations to the new property. This is especially true for first-time homebuyers who don’t have the financial windfall from selling a previous home to cover the costs of buying a new home. 

If you can’t afford closing costs, you have a few options, including:

  1. Reducing costs (or getting them waived)
  2. Applying for closing cost assistance programs
  3. Finding alternative solutions for funding your closing costs

Here is a closer look at each option.

How To Reduce Closing Costs 

You may be able to reduce closing costs in the following ways:

  • Negotiate with your real estate agent. Real estate agent fees are negotiable, so you may be able to work out a lower commission percentage or different payment arrangement with your agent.[3]
  • Choose your new home with closing costs in mind. Certain homes may bring higher taxes, HOA fees, or recording costs. If you're still in the house-hunting phase, consider how closing costs differ across locations and property types.
  • Shop around for your service providers. Ask for quotes from multiple mortgage lenders, insurance companies, home inspectors, appraisers, and title companies. You can compare the fees listed on the quotes to find the best deal for each service.
  • Ask your lender to reduce or waive fees. Some lenders may be willing to negotiate or even waive some fees to earn your business. Ask your lender to explain each fee and see if any of them can be lowered or waived.
  • Skip unnecessary extras. Optional products and services, like home warranties, supplemental insurance policies, or mortgage discount points, can be declined to save money on closing costs, depending on your situation and risk tolerance.
  • Find your own real estate attorney. If your state requires an attorney to facilitate the property transfer, finding your own attorney might cost less than hiring one referred by the seller or lender. Just do your homework to make sure they’re licensed in your state and you’re comfortable working with them.[4]
  • Close at the end of the month (if possible). Your prepaid interest (the amount you pay upfront to cover interest between closing and your first mortgage payment) is prorated based on the closing date. Closing near the end of the month can reduce this cost.

How to Apply for Closing Cost Assistance Programs

Closing cost assistance programs offer financial help to homebuyers to reduce their out-of-pocket expenses at closing. This is typically done to make homeownership more accessible, so it is often reserved for first-time buyers, buyers with limited income, and/or buyers looking to purchase in certain geographical locations with low to moderate income levels. Assistance can come from government departments (often at the state and local levels), nonprofit organizations, employers, and even lenders in a few different forms:[5]

  • Grants. Grants are financial gifts that do not need to be repaid as long as you meet the program’s requirements (such as using the house as a primary residence rather than a rental, for example).  
  • Deferred loans. With deferred loans, you can borrow funds to pay closing costs, but you don’t have to repay the debt until you sell the property, refinance the mortgage, or move out. In many cases, closing cost assistance deferred loans don’t charge interest. 
  • Forgivable loans. With forgivable loans, you can borrow money to pay closing costs, but you don’t have to repay the loans as long as you meet the criteria that make them forgivable. For example, a city with a declining population might offer forgivable loans for closing costs to buyers who agree to live in the home for at least five years. In this case, the loans would be forgiven after five years in the home. 

Ask your lender and real estate agent if they know of any local closing costs assistance programs you may qualify for. You can also search online for programs in your region.

To apply for closing cost assistance:

  1. Confirm that you meet the program’s eligibility criteria.
  2. Complete any homebuyer course that may be required by the program.
  3. Gather any financial documentation required by the program, such as identification and proof of income.
  4. Complete the application online, by mail, or in person, depending on the program’s application process.
  5. Follow up on your application by phone if possible.   

How to Find Alternative Solutions for Funding Your Closing Costs

In addition to reducing your closing costs and seeking closing cost assistance programs, you can look for additional funding to help cover your closing costs from the following sources:

  • Seller concessions. You can negotiate with the seller to have them cover part (or all) of your closing costs as part of the purchase agreement. This is especially common when there are fewer buyers in the market, and the seller may be more motivated to offer financial incentives to close the deal. 
  • Lender credits. Your lender may be willing to cover some of your closing costs in exchange for a slightly higher mortgage interest rate. However, the higher rate may cost more over the term of the loan, so it is important to understand the trade-off before accepting lender credits. In an extreme example of lender credits, some lenders offer a no-closing-cost mortgage, in which the full amount of the closing costs is absorbed by a higher-interest-rate loan.[6]
  • Financial gifts. While the specifics vary depending on the type of mortgage loan you’re getting, you can typically use financial gifts from family to help cover closing costs. However, they may need to provide a letter stating that the funds are a gift and not a loan.  
  • Down payment assistance programs. Similar to closing cost assistance programs, there are many types of down payment assistance programs available to qualified buyers.[5] Getting financial assistance with the down payment could free up funds to help cover closing costs.  

Creating a Homebuying Budget Early Can Help Manage Closing Costs 

Budget for a home purchase can be challenging because so many of the expenses are based on the purchase price or unknown until the property is under contract. However, with budgeting tools, like the Home Insight® Planner, you can start preparing for the cost of buying your new home early in the process.

Early planning allows you more time to save for closing costs and can provide a smoother, more enjoyable home-buying experience.