Closing costs can come as a surprise to the ill-prepared homebuyer.  The idea that there would be additional fees and costs that go beyond that huge buying price can cause some buyers to turn away from the home of their dreams.  When it comes to closing costs, most are fairly set in stone, but there are ways to lower closing costs and make the unimaginable quite acceptable.

Closing costs usually run around 2%-3% of the value of the purchased home.  The trouble with closing costs is that buyers don’t get a realistic number until they receive their HUD-1 Settlement Statement, which usually occurs about 72 hours before closing.  There is the Good Faith Estimate, but these are just estimates and with HUD’s recent changes to the document, Good Faith Estimates may confuse and scare more than prepare.  Closing costs pay for a number of services including: 
•  Loan Origination Fees
•  Title Company Fees
•  Deed Recording Fees
•  Property Surveyor Fees
•  Home Inspection Fees
•  Appraisal Fees
•  Attorney Fees

The conundrum with closing costs is that most buyers save for years to have the money for a down payment.   Down payments are great because they lower the amount you must borrow, lowering your costs over the long term.  Most buyers end up using a portion of their down payment to pay for closing costs and lose that big down payment long term advantage.  One thing that buyers can do to reduce their closing costs is to have their lender roll the closing costs into the mortgage.  Although this allows you to make your big down payment, but it also adds to your monthly mortgage payment.  Consider adding another $10000 to your mortgage that over thirty years will cost you over $30000.  You will have to crunch some numbers to determine if this is the right choice for your situation.

Negotiating the closing costs into the asking price or asking the seller to pay all or a portion of the closing costs are additional options.  This option is most viable in situations where the property has been on the market for a while and the sellers are more than motivated to unload.  Even if you cannot get the seller to pay all of the closing costs, you may be able to get them to cover half or more.
 
A not so great option is to ask your lender to cover your closing costs.  Most will be unwilling to do so, but those that do will likely raise your interest rate by 25 to 100 points costing you more in the long term.  Your best defense against rising closing costs is to request multiple Good Faith Estimates from lenders and comparison shop.  But the best way to steer clear of closing cost fears is to plan ahead and set aside enough cash to cover closing costs and you ideal down payment.