What Are Closing Costs?
Closing costs are fees and expenses you pay when finalizing your home purchase — beyond the down payment. They typically range from 2% to 5% of the home purchase price. On a $400,000 home, expect $8,000 to $20,000 in closing costs. Many first-time buyers are shocked by these additional expenses because they focused only on the down payment.
Some closing costs are negotiable, some can be shopped for, and some are fixed. Understanding each fee helps you save money and avoid surprises on closing day.
Lender Fees
- Origination fee — 0.5-1% of loan amount. The lender fee for processing your mortgage. Negotiable — ask for a reduced or waived origination fee, especially if you have strong credit
- Application fee — $0-$500. Some lenders charge for processing your application. Many waive this. If a lender charges this, ask for it to be credited at closing
- Underwriting fee — $400-$900. Fee for evaluating your loan application. Sometimes bundled with origination fee
- Discount points — Optional. Each point costs 1% of the loan and reduces your rate by about 0.25%. Worth it if you plan to keep the loan 7+ years. On a $400,000 loan, 1 point = $4,000 upfront but saves $60-70/month
- Credit report fee — $25-$75. Cost of pulling your credit reports from all three bureaus
Third-Party Fees
- Appraisal fee — $400-$700. An independent appraiser determines the property value. Required by the lender to ensure they are not lending more than the home is worth
- Home inspection — $300-$600. Not technically a closing cost (you pay upfront) but essential. Reveals structural, electrical, plumbing, and other issues
- Title search and insurance — $1,000-$3,000. Title company searches for liens, disputes, or claims against the property. Title insurance protects you and the lender if a title issue emerges later
- Survey fee — $300-$600. Confirms property boundaries. Not required in all states
- Attorney fee — $500-$2,000. Required in some states. The attorney reviews documents and ensures legal compliance
Government and Prepaid Fees
- Recording fees — $50-$250. County fee for recording the deed and mortgage in public records
- Transfer taxes — Varies widely by state and county. Some states have no transfer tax, others charge 1-2% of the purchase price. Check your specific location
- Prepaid property taxes — 2-6 months of property taxes paid upfront to establish your escrow account
- Prepaid homeowner insurance — Your first year premium is typically due at closing. Usually $1,200-$3,000/year
- Prepaid interest — Daily interest from your closing date to the end of the month. Closing at the end of the month minimizes this cost
- Escrow deposits — 2-3 months of taxes and insurance deposited into escrow. Your lender holds this to pay future bills
How to Reduce Closing Costs
- Negotiate with the seller — Ask the seller to pay a portion of closing costs (seller concessions). Common in buyer markets. Typically 2-3% of purchase price
- Shop for title insurance — You have the right to choose your title company. Get quotes from 3+ providers. Savings can be $500-$1,500
- Compare lender fees — Use the Loan Estimate form from each lender to compare fees side by side. Focus on Section A (origination charges) which are most negotiable
- Close at the end of the month — Reduces prepaid interest charges by up to $1,000+
- Ask about no-closing-cost mortgages — The lender covers closing costs in exchange for a slightly higher interest rate. Good if you are short on cash but bad long-term
- Check for first-time buyer assistance — Many state and local programs offer closing cost assistance grants for qualifying buyers