Closing costs are the fees and prepaid expenses due at the end of a real estate transaction — on top of your down payment. They’re often underestimated because they’re not prominently advertised, and they appear in your Closing Disclosure only 3 business days before you sign.
Total closing costs typically run 2%–5% of the loan amount for buyers, though the exact figure varies significantly by location, loan type, and negotiation.
What’s Included in Closing Costs
Closing costs fall into two categories: fees (paid to cover services) and prepaids (amounts collected upfront for future expenses).
Lender Fees
- Origination fee: The lender’s charge for processing the loan; sometimes a flat fee, sometimes expressed as a percentage of the loan amount (0.5%–1% is common, though many lenders don’t charge this explicitly)
- Underwriting fee: Covers the cost of underwriting the loan; typically $400–$900
- Application fee: Some lenders charge; others don’t
- Discount points: Optional; each point equals 1% of the loan amount and reduces your rate
Third-Party Service Fees
- Appraisal: $400–$700 for a standard single-family home
- Title search and title insurance: Title company confirms there are no liens or ownership disputes; lender’s title insurance protects the lender (required); owner’s title insurance protects you (recommended but technically optional in most states)
- Survey: Confirms property boundaries; $300–$700
- Attorney fees: Required in some states; $500–$1,500
Government Fees
- Recording fees: County charge to record the deed and mortgage; varies by county
- Transfer taxes: State and/or local tax on the property transfer; varies significantly by state (some states have none; others charge 1%–2% of the sale price)
Prepaid Items
These aren’t fees for services — they’re amounts collected upfront that you’d owe anyway:
- Prepaid interest: Interest owed from closing date to the end of the month; the more days left in the month when you close, the larger this amount
- Homeowner’s insurance premium: Usually the first year’s full premium, paid at closing
- Property tax escrow: 2–6 months of property taxes deposited into your escrow account
- Mortgage insurance (if applicable): First month of PMI or MIP
Who Pays Closing Costs?
In most transactions, buyers pay the lender fees, third-party service fees, and prepaids. Sellers often pay real estate agent commissions and may pay some buyer closing costs as a concession.
Seller concessions — where the seller agrees to pay a portion of the buyer’s closing costs — are common, particularly in slower markets. The lender must approve the concession amount; limits vary by loan type (typically 3%–6% of the purchase price depending on down payment and loan program).
Lender credits are another option: the lender covers some or all closing costs in exchange for a higher interest rate. This makes sense if you’re short on cash at closing and plan to refinance or sell within a few years before the higher rate fully erodes the savings.
How to Reduce Closing Costs
Shop third-party services. You have the right to choose your own title company, attorney (where applicable), and settlement agent. The lender will provide a list of approved vendors, but you can also shop independently for better pricing.
Negotiate with the seller. In any market with less than extreme buyer demand, asking the seller for a concession toward closing costs is reasonable — and often granted, particularly if the alternative is a failed transaction.
Ask about lender fee flexibility. Origination fees and some processing fees are sometimes negotiable, particularly for well-qualified borrowers. It never hurts to ask directly.
Time your closing. Closing at the end of the month minimizes prepaid interest (fewer days between closing and the first of the month). This can save a few hundred dollars on a typical loan.
The Loan Estimate and Closing Disclosure
Federal law requires lenders to provide a Loan Estimate within 3 business days of your application. This document shows itemized closing cost projections. Three business days before closing, you’ll receive the Closing Disclosure, which shows the final numbers.
Compare these documents carefully. Most lender fees cannot increase from Loan Estimate to Closing Disclosure. Third-party fees can increase by up to 10% in aggregate. If you see large discrepancies, ask your loan officer to explain them before signing.
For a full picture of your total upfront costs — down payment plus closing costs — use the Affordability Calculator on LendingPulse, which includes fields for both.
Frequently Asked Questions
How much should I budget for closing costs?
Budget 2%–5% of the loan amount. On a $350,000 loan that’s $7,000–$17,500. The exact figure varies by state, loan type, and how much you shop third-party services like title and settlement.
Can the seller pay my closing costs?
Yes, through seller concessions. Limits are set by loan program — typically 3%–6% of the purchase price depending on your down payment. The lender must approve the concession, and it must be reflected in the purchase contract.
What’s the difference between the Loan Estimate and the Closing Disclosure?
The Loan Estimate is provided within 3 business days of your application and shows projected costs. The Closing Disclosure arrives 3 business days before closing with final figures. Most lender fees cannot increase between the two; third-party fees can increase by up to 10% in aggregate.
Are closing costs negotiable?
Some are. Lender origination fees are sometimes negotiable, especially for well-qualified borrowers. Third-party fees — title, settlement, attorney — can be shopped for better pricing. Government recording fees and transfer taxes are generally fixed.