How to Cover Closing Costs: You’ve Got Options

  • November 2, 2022
  •   •  
  • 4 min. read time
mortgage blog, closing costs, preferred rate

Mortgage rates are beginning to steady but higher rates could be coming down the road. If you’re thinking about buying a home or refinancing, you can save a lot of money when it comes to closing costs. Closing costs can be an unwelcome surprise, even if you aren’t a first-time homebuyer. But closing costs don’t have to break the bank. Every home loan includes closing costs as part of the transaction—new home loans, home renovation loans, investment properties, condos, and refinancing. If you’re getting approved for a new mortgage then deciding how to pay the closing costs is an important part of the bigger financial picture.

The good news is that homebuyers have several options when it comes to paying closing costs. What’s more, you can save a lot of money on your next mortgage, and understanding how to pay closing costs is a big part of the puzzle.

An experienced mortgage advisor can help explain your best options and help you meet your financial goals. Keep reading for the top highlights.

Related: How to win the bidding war for new homebuyers in 2022


Many homebuyers choose to pay closing costs upfront once the purchase or refinance is complete.

However, paying a large sum of money out-of-pocket sometimes isn’t the best financial strategy.

Closing costs are a one-time expense due at closing—typically 2-5% of the home loan amount. Line items covered by closing costs often include loan origination fees, appraisal fees, title insurance, property taxes, and more. You can find a more extensive list here.

5 Popular Strategies to Pay Closing Costs

If you’re looking for a way to lower your out-of-pocket expenses at closing, these are the most popular options:

  • Pay closing costs up front when you sign the new loan
  • Roll the closing costs into your loan
  • Agree to have the lender pay closing costs in exchange for a higher rate
  • Negotiate with the seller to cover some fees
  • Apply for HUD-approved grants to help pay for closing costs

1. Pay for closing costs upfront.

This is a common approach to paying closing costs. When you get ready to sign the final papers and close on your new mortgage, there will be a final balance due. You can pay this in full (typically with a cashier’s check) right then and there.

For homebuyers short on cash, this can be costly. Especially since you want to have enough savings to cover new home expenses or unexpected repairs that might come up.

2. Roll the closing costs directly into the mortgage.

Adding closing costs to a home loan is another option that helps homebuyers lower out-of-pocket expenses. When you decide to roll the closing costs into your mortgage, the lender simply adds the amount of the closing costs to your original loan amount.

For example, if your purchase price is $400,000 with a down payment of $40,000 (10%), your home loan would be $360,000. Let’s assume closing costs for your new mortgage are $10,800 (3%). The mortgage lender would add that amount to the loan, putting your new mortgage at $370,800.

This can be an attractive solution for new homeowners who can afford a slightly higher mortgage payment and don’t want to pay the closing costs upfront.

Related: How to refinance a mortgage without an appraisal fee

3. Ask your mortgage lender about a no-cost or zero-cost loan to cover closing costs.

Some mortgage lenders offer what’s called a no-cost mortgage. In this case, the mortgage lender will pay all (or most) of your closing costs upfront and increase the mortgage rate in exchange.

This is a profitable option for the lender since the lender will have a higher return over the life of the loan, and closing costs are a fixed amount.

For first-time homebuyers, lowering out-of-pocket expenses could help you become a homeowner sooner.

4. Negotiate with the seller to decide who pays for closing costs.

It’s common for a seller and buyer to negotiate who pays for some of the closing costs as part of the final contract. Often the seller will offer to cover some of the closing costs, but if the property is in a high-demand location, the buyer typically covers the closing costs in full.

5. Apply for housing grants that help pay for closing costs.

Sometimes, rolling the closing costs into the mortgage isn’t affordable since it often results in a higher mortgage payment or a bigger home loan. Sometimes, it can cause the home loan amount to jump beyond your approved loan amount, or the new mortgage payment isn’t affordable.

A good alternative might be a HUD-approved grant. Many first-time homebuyers and borrowers with low-to-moderate income can apply to HUD-approved housing agencies for help. These agencies offer grants to help with closing costs and down payments. If you think you might qualify, give us a call. We can connect you with some information that might help.

How to Apply for a No-Cost or Zero-Cost Mortgage

Connect with a local mortgage advisor to discuss your options.

Closing costs are to be expected when you apply for a mortgage, whether you pay them out-of-pocket or roll them into a home loan. And understanding your options ahead of time can help you save money and move toward financial stability.

Mortgage financing is never one-size-fits-all, and we understand it can be overwhelming to understand all the options available to you. We’re committed to helping you secure the best mortgage at a competitive rate so you can save money on your next mortgage.

Connect with a local mortgage advisor and find out which option will help you meet your financial objectives.

Related: Compare the benefits of Renting vs. Buying in 2022

Taking Action

Don’t let closing costs keep you from your best mortgage.

If you’re considering buying a house or refinancing your mortgage, connect with a mortgage advisor in your area to discuss your best options. We can guide you through the process and help you decide which path meets your financial goals. We’d love to help you finance your next dream home today.