Many buyers are surprised to learn that the down payment isn’t the only upfront cost when buying a home. Closing costs are a collection of fees and expenses due at the end of the transaction — and they can add up quickly.
Understanding what’s included in closing costs helps you plan your budget more accurately and avoid last-minute surprises at the closing table.
1. What Are Closing Costs?
Closing costs are the fees and expenses associated with finalizing your home purchase. They typically range from 2% to 5% of the home’s purchase price. On a $400,000 home, that could be $8,000 to $20,000.
Some of these fees are paid to third-party service providers, while others are lender-related charges or government-imposed taxes.
2. Common Closing Costs
- Loan Origination Fee: Charged by the lender to process your loan application, usually around 0.5% to 1% of the loan amount.
- Appraisal Fee: Required by lenders to determine the home’s market value. Typically $300–$600.
- Home Inspection: Though optional, it’s highly recommended. Costs vary, usually between $300 and $500.
- Title Search and Title Insurance: Ensures the property’s title is clear and protects against ownership disputes.
- Recording Fees: Charged by your local government to officially record the property transfer.
- Attorney Fees: In some states, attorney representation is required and charged as part of closing.
- Escrow Fees: Charged by the title company or escrow service handling the transaction.
- Prepaid Taxes and Insurance: Buyers often prepay a portion of property taxes and homeowners insurance premiums into escrow.
3. Who Pays Closing Costs?
Both buyers and sellers have closing costs, but they cover different items. Buyers typically cover lender fees, inspections, title services, and prepaid items. Sellers often pay agent commissions, transfer taxes, and their portion of title fees.
In competitive markets, buyers may offer to cover more of the closing costs to win an offer. In slower markets, it’s common to ask the seller for a closing cost credit to help offset these expenses.
4. How to Estimate Your Closing Costs
Ask your lender for a Loan Estimate early in the process. This document outlines the anticipated closing costs based on your loan type, property value, and other factors. A few days before closing, you’ll receive a Closing Disclosure with finalized numbers.
5. Ways to Reduce Closing Costs
- Shop Around: You can choose your title company, insurance provider, and other services — some may be more affordable than others.
- Negotiate Fees: Ask your lender to explain all charges. Some may be negotiable or waived under certain conditions.
- Use a Lender Credit: Some lenders offer to cover part of your closing costs in exchange for a slightly higher interest rate.
- Down Payment Assistance Programs: Some programs for first-time buyers or specific income brackets include grants to help with closing costs.
6. Don’t Forget to Plan for Cash to Close
In addition to your down payment, you’ll need to bring funds for closing costs to your final signing appointment. These must be paid via wire transfer or cashier’s check — personal checks are not accepted.
Conclusion
Closing costs are a normal part of buying a home — but they can be confusing and expensive if you’re not prepared. By understanding what’s included and how to manage them, you’ll avoid surprises and stay on budget.
Expert Agents Near Me connects you with trusted real estate professionals who will walk you through every step of the process — including what to expect at closing. With the right guidance, you can move forward with confidence and clarity.