Massachusetts is one of America's prettiest and most historic states. Between Boston, gorgeous beaches, and the beautiful Berkshire mountains, the Commonwealth has something for city-dwellers and outdoorsmen/outdoorswomen alike.
All of this comes at a financial cost, however. Real estate is much more expensive than the national average, in large part due to everything Massachusetts has to offer its residents.
Regardless of which type of mortgage you use, you'll need to remember that you're still on the hook to pay closing costs on your new home purchase.
Today, I'll introduce you to closing costs and ten ways in which you can lower your closing costs on your Massachusetts home purchase.
Skip to: Strategies to cut your closing costs
What are closing costs?
Closing costs are fees that you'll pay as a result of a real estate transaction. These fees are incurred during the process of buying or selling a home, and are collectively known as "closing costs" since they are typically paid for at the real estate closing.
For buyers. these expenses include fees split into three main categories:
Lender fees (paid to your bank)
Title fees (paid to your real estate attorney or title company)
Property-related fees (services mandated by your lender)
Typically, you'll bring one bank check to your closing (or wire the funds), which will then be used to pay the related parties.
Related: First-Time Home Buying 101 Guide
How expensive are closing costs in Massachusetts?
To the surprise of nobody that lives there, closing costs in MA are higher than they are in the majority of the country.
In general, I recommend you prepare for your closing costs to be about 4% of your loan amount, though they are more likely to be somewhere in the vicinity of 3%.
There are many variables that determine exactly what your total costs will be, but there are three main factors that play the largest role:
The real estate taxes in the town you are purchasing in
When in the month the closing occurs
Whether your new home has an HOA
Let's break these down in more detail.
1. MA property taxes
Part of the reason for The Bay State's high closing costs are its high real estate tax rates. When you purchase a home, you'll oftentimes need to pay for a number of months of property taxes ahead of time to help establish your escrow account.
Where you buy within Massachusetts can make a huge difference.
Towns such as Longmeadow (24.64), Wendell (23.24), and Greenfield (22.32) have the highest rates in the state, where the average is around 15. Surprisingly, some wealthy areas around Boston have much lower rates, like Cambridge, for example, where the 2022 rate is 5.92.
Simply looking at tax rates across Massachusetts doesn't tell the whole story, though, since towns like Longmeadow and Greenfield have home prices much less than what you'd find in the Boston metro area.
While a $300,000 house in Longmeadow carries an annual tax bill of $7,392 (24.64 X $300,000) / 1000), you cannot find a home at that price in many other parts of the state.
It is truly a balancing act, but generally, the closer you get to Boston, the higher the average price of homes. Counties such as Suffolk, Plymouth, and Middlesex are likely to carry more expensive homes than Franklin and Berkshire Counties, for example.
2. When in the month you close
The next factor is the actual calendar date in which you close. A known way to save a thousand dollars or more off your expenses is to hold off on closing until the very end of a month. Doing so limits the amount you'll be charged in prepaid interest you'll need to pay.
Closing is the one time over the life of your mortgage that you'll have to prepay your interest.
3. Whether your home is part of an HOA
The third main factor you'll want to consider is whether your new home or property is part of a homeowner's association. If so, this will add a bit to your closing costs, due to HOA transfer and other associated fees.
Do keep in mind that you'll also likely be responsible for ongoing monthly/annual HOA dues as well for as long as you own your property.
Which expenses make up your closing costs?
Regardless of where you buy your home in Massachusetts, your closing costs will fall into three main categories:
Lender based
Title fees
Property fees
1. Loan origination and lender fees
Unsurprisingly, your lender is going to charge you for getting your new mortgage loan all set up. The largest of these lender assessed fees are loan origination fees, which usually cost about 1% of your loan amount.
Beyond loan origination fees, you'll also need to prepare for the following expenses:
Mortgage application and underwriting fees - $500-$1,000, but it depends on the lender
Credit reporting fees - traditionally less than $75
Prepaid mortgage interest - depends on your mortgage
Title insurance - mandated by most all lenders, and costs $400-$1,000
Most of these fees are self-explanatory, with the exception of title insurance, which covers you in the event that your real estate attorney or title company fails to uncover a lien or other legal issue when performing a title search (more on this in a minute).
2. Title search and fees
You'll also need to pay for a title search when preparing to purchase your home. And though it is mandated by most lenders, you wouldn't want to proceed without it anyway. Your title search will turn up any legal issues, property liens, or any other issues that need to be solved before you can legally take ownership of your new property.
It'll likely cost you a few hundred dollars, though you may also be charged for miscellaneous other costs, such as document preparation or courier fees. Your title company will also pass along fees charged to change town records.
3. Property-based fees
The last major category of expenses that you'll incur relate directly to your new property, though they too are often mandated by lenders across the Commonwealth.
You'll need to:
Have your home appraised (about $500 for most homes)
Prepay a year of homeowner's insurance (varies by home)
Have a home inspection
Though the home inspection may not be mandated by the bank it generally is a good idea to know more about your new property. A good inspector will be able to estimate useful life remaining on many of the home's systems, as well as offer well water and radon testing if you decide.
7 ways to lower Massachusetts closing costs
Without further ado, here are ten strategies that you can use for lower closing costs.
1. Shop for mortgage lenders
I always recommend that homebuyers shop for mortgage lenders, regardless of what state they are home shopping in. You'll likely find that the majority of lenders on the market will charge you application, underwriting, and mortgage origination fees. Remember - your origination fee is likely to be somewhere in the range of 0.5% to 1%, a difference which could equate to up to $2,000 or more.
In some instances, you may find mortgage lenders that do not assess loan origination fees.
No mortgage origination fee lenders
There are a number of lenders offering home loans without an origination fee, including:
Ally Bank
PenFed Credit Union
Navy Federal Credit Union
2. Negotiate with the seller
In some instances, you may have leverage in your home purchase, particularly if you are buying a significant fixer upper or are buying into a buyer's market. The home seller has no obligation to agree but may be more likely to in the event that he/she has had difficulty in selling a home.
If the seller does agree, you can ask for a fixed dollar amount or for a percentage of your final closing costs.
3. Negotiate with your lender
You'll typically have more leverage with your lender in times where mortgage rates are high, since homebuying activity tends to slow down. But regardless of interest rates at the time that you buy, ask your lender to waive your mortgage application or underwriting fees.
You have nothing to lose. And if they agree, you may find yourself in a situation where you can save $500-$1,000.
4. Take advantage of MA closing cost assistance
Massachusetts, like most other states, has a number of closing cost assistance programs that you may be eligible for, particularly if you are buying a home for the first time.
In addition to buying a home for the first time, you'll likely need to meet a few other requirements, such as:
Purchase a home within price limits under the terms of various programs across the state
Buy a home that passes a home inspection
Get approved for a mortgage from a qualifying lender
Complete a home buyer education course
You may also need to meet certain maximum income and liquid asset thresholds.
Closing cost assistance programs
Some of the organizations offering assistance are listed below along with the town/city you may utilize the program in. This is in no way an exhaustive list.
Department of Neighborhood Development (Boston)
Neighborhood Housing Services (Brockton)
Community Development Agency (Fall River)
Office of Housing (Springfield)
Waltham Housing Department (Waltham)
South Shore Housing (Carver, Dartmouth, Fairhaven, Plympton, Rochester, Wareham, Westport)
The full list can be found on the Mass Realty website.
5. Consider a no closing cost mortgage
Some lenders offer what are known as no closing cost mortgages, which are just what they sound like.
But just because you aren't paying them when you take ownership of your home does not mean that you aren't responsible for them. Instead, these expenses will be financed as part of your home loan, which will increase your mortgage payments for the entirety of your loan.
It is up to you to decide whether these higher mortgage rates are worth it.
6. Buy a home in a low tax area
Admittedly, this can be difficult if you work in Boston, but buying a home in an area of the state with lower property taxes can be a great way to save money come closing time. Depending on the calendar date of your closing, you may need to pay three months - or more - of your property taxes.
Buying a home in a lower taxed area can help you save $1,000 or more come closing time, and thousands of dollars per year.
7. Review your loan estimate and closing disclosure
In most all cases, your lender will provide you with some documentation as the homebuying process evolves. These two documents, known as your loan estimate and closing disclosure forms, will outline all of your projected fees and expenses that you'll incur throughout the homebuying process.
I recommend that you always review these forms and ask your lender to clarify any and all expenses that seem incorrect.
Get our MA closing cost calculator
We built a detailed closing cost calculator for our Massachusetts readers looking to prepare for homeownership and keep these expenses in check. We'll help you account for every major closing expense you'll likely encounter as you buy a home in the Bay State, as well as those less common items, such as credit reporting or survey fees.
Start preparing for homeownership now.
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