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You're well on your way to becoming a first-time homeowner, and you couldn't be more excited. You've saved up for the down payment, pre-qualified for a loan, and found great prospects within your price range. But before you can finish checking off your list of financial readiness for homeownership, you'll need to budget for closing costs. Closing costs encompass a list of fees to pay in order to complete your purchase of a home.

Here's what you need to know about the closing costs you may encounter and how to lower the amount you pay upfront.

Common Buyer's Closing Costs

The type and amount of closing costs you pay can depend on several factors including the real estate laws in your state, the kind of mortgage loan you have, and how much you're borrowing. Some of the most common fees cover the costs of appraisal, home inspection, homeowners insurance, and a loan origination fee among others.

The loan origination fee covers the cost your lender incurs to process your loan application including handling the paperwork and verifying the information you supply.

Lenders are required to provide you with a Loan Estimate — a document that gives an estimate of how much you'll have to pay in fees — of your closing costs within three days of receiving your loan application.

How to Reduce Closing Costs

Having an early idea of the closing costs you're likely to face gives you time to come up with potential ways to lower some of them. Talking to the seller, shopping around, and financing are three effective ways to reduce closing costs.

  1. Talk to the Seller: If a seller is looking to sell their home faster, they may also be willing to cover the closing costs. Doing so could be mutually beneficial as there are specific tax benefits that the seller may be able to take part in. A seller may also be willing to cover closing costs if you pay full price for a home or if you purchase the house as-is, without requesting any specific fixes.
  2. Shop Around: For some of the items on that laundry list of fees, you can shop around to find your own best price. These include the home inspection, title search, homeowners' insurance, and — depending on certain factors including your state laws — title insurance. You'll receive a list of approved vendors from your lender, but you can choose others that meet the lender's criteria.
  3. Finance the Fees: Another potential way to reduce the closing costs that you'll pay upfront is to roll some of them into your mortgage loan amount so that you pay them over time instead. Some lenders provide this option through special programs targeting first-time homebuyers as well as those who are refinancing a home. Depending on your lender, expenses eligible for a rollover may include origination fees, credit report fees, appraisals, title insurance, courier fees, and other administrative costs.

KeyBank's new Low Closing Cost Mortgage Option program allows homebuyers and refinancers to reduce some of their out-of-pocket closing costs, and trade longer-term costs for short-term cash savings. This program can help you complete the purchase of your home if you don't have the cash on hand for fees such as those for the application, title, appraisal, credit report, and others. Consider both the current and future financial impact and make an informed decision about the best path for you to take. Your mortgage loan officer can help you sort through the pros and cons.

Closing costs are a necessary part of the homebuying process, but they don't have to be a stumbling block to purchasing your dream home. While you're house hunting, look for ways to reduce closing costs by comparing prices of service vendors.

Disclosures

Use of the option to reduce out-of-pocket closing costs will increase the interest rate on the loan, resulting in an increased monthly mortgage payment, and may result in a greater total loan cost over the life of the loan. Option may not be available for all loan products. Ask us for details on available options that meet your financial needs.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

By selecting any external link on www.Key.com, you will leave the KeyBank website and jump to an unaffiliated third party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.

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