What are Closing Costs?
Closing costs are the fees and expenses paid when finalizing a mortgage and transferring ownership of a property.
These costs are separate from your down payment and are typically due at closing.
While the exact amount varies based on your loan, property, and location, closing costs generally range between 2% and 5% of the home's purchase price.
What Do Closing Costs Include?
Closing costs can include a variety of expenses related to your mortgage and home purchase.
Lender Fees
These fees cover the processing and underwriting of your mortgage application.
Examples may include:
Loan origination fees
Underwriting fees
Processing fees
Title Services
Title-related fees help verify ownership of the property and protect against ownership disputes.
Examples may include:
Title search
Title insurance
Settlement services
Appraisal Fee
Most lenders require an appraisal to determine the home's market value before approving the loan.
Home Inspection
While not always included in closing costs, many buyers choose to have a professional inspection completed before purchasing a home.
Taxes and Government Fees
Depending on your location, closing costs may include:
Recording fees
Transfer taxes
Local government fees
Prepaid Expenses
Some costs are collected upfront at closing and placed into an escrow account.
These may include:
Property taxes
Homeowners insurance
Mortgage insurance (when applicable)
Can Closing Costs Be Reduced?
In some situations, buyers may have options to help reduce upfront costs.
Examples may include:
Seller concessions
Down payment assistance programs
Lender credits
First-time homebuyer programs
A mortgage professional can help you understand which options may be available based on your individual situation.
When Will I Know My Closing Costs?
Your lender will provide an estimate of your closing costs early in the mortgage process through a Loan Estimate. Before closing, you'll receive a Closing Disclosure outlining the final costs associated with your loan.
These documents help you understand what to expect before signing.
Tips for Preparing for Closing Costs
Budget Early
In addition to saving for your down payment, be sure to account for closing costs when planning your home purchase.
Ask Questions
Understanding your fees can help you feel more confident throughout the mortgage process.
Review Your Loan Estimate
Take time to review your loan estimate carefully and discuss any questions with your lender.
Explore Assistance Programs
Some buyers may qualify for programs that help offset certain closing costs.
You're one step closer to getting the keys! Here's what happens next.
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Frequently Asked Questions
Are closing costs included in my down payment?
No. Closing costs are separate from your down payment and cover the fees associated with finalizing your mortgage and home purchase.
How much should I budget for closing costs?
Closing costs typically range from 2% to 5% of the home's purchase price, though the exact amount varies depending on your loan and location.
Can closing costs be rolled into my mortgage?
In some situations, certain costs may be financed, depending on the loan type and available equity. Your lender can help explain the options available to you.
Can the seller help pay closing costs?
Sometimes. Seller concessions may allow a seller to contribute toward a buyer's closing costs, subject to loan program guidelines and negotiation.
Do first-time homebuyers pay closing costs?
Yes. However, some first-time buyers may qualify for assistance programs that help reduce out-of-pocket expenses.
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