What Are Closing Costs?
Closing costs are the fees you pay to finalise a home purchase — typically 2–5% of the price, on top of your down payment. On a $350,000 home that's roughly $7,000–$17,500 due the day you close. It's the number that blindsides first-time buyers, because almost every conversation about affording a house stops at the down payment.
What's actually in them
Closing costs aren't one fee — they're a stack of them, in four groups:
- Lender fees. Origination and underwriting charges for making the loan. Often the largest single line, and among the most negotiable.
- Third-party services. Appraisal, credit report, title search, title insurance, settlement or attorney fees, survey. These pay outside companies, not your lender.
- Government charges. Recording fees and transfer taxes. Entirely location-dependent — and the main reason closing costs vary so much between states.
- Prepaid items. Not fees at all, but money paid in advance: your first year of homeowners insurance, several months of property taxes into escrow, and interest from closing day to month end.
That last group surprises people, because it isn't a cost of borrowing — it's your own future expenses, collected early. It also means a closing at the start of a month carries more prepaid interest than one at the end.
A real example: $350,000 home
A representative mid-range breakdown at roughly 3%:
- Loan origination & underwriting: $3,000
- Appraisal: $500
- Title search & lender's title insurance: $1,800
- Settlement / attorney fees: $1,000
- Recording & transfer taxes: $1,200
- Prepaid insurance, taxes & interest: $3,000
Total: about $10,500. In a high-transfer-tax state the same purchase can push past $17,000; in a low-tax state it might land nearer $7,000.
Cash to close: the number that matters
The figure to plan around isn't the down payment or the closing costs alone — it's cash to close:
down payment + closing costs − earnest money already paid − any credits
On that $350,000 home with 5% down: $17,500 + $10,500 = $28,000, less whatever earnest money you already put up. That's the number worth saving toward — see how much down payment you actually need for the other half of it, and set the target on the savings goal calculator.
And keep it separate from your emergency fund. Arriving at closing having spent every liquid dollar is how a new homeowner meets their first repair bill with a credit card.
The fees you can shop for
Your Loan Estimate splits services into ones you can shop for and ones you can't. Most buyers never look:
- Shoppable: title search, title insurance, settlement/closing agent, survey, pest inspection. Quotes vary by hundreds of dollars for identical work.
- Not shoppable: the appraisal, credit report and lender's own underwriting — your lender selects these.
The bigger lever is comparing lenders outright. Origination fees differ substantially between them, and the Loan Estimate is a standardised form specifically so you can lay two side by side and compare line for line.
Three ways to pay less
- 1. Ask for seller concessions. The seller contributes toward your closing costs, usually in exchange for a slightly higher price. Loan programs cap how much — conventional limits commonly scale with your down payment, and FHA and VA have their own ceilings. In a slow market this is the most effective lever available.
- 2. Take a lender credit. Accept a marginally higher interest rate and the lender covers part of your costs. Good if you're short on cash today or don't expect to keep the loan long; expensive if you hold it for decades. Compare both versions on the mortgage calculator.
- 3. Check first-time buyer programs. Many state and local schemes offer closing-cost assistance as grants or forgivable second loans, and plenty of eligible buyers never apply.
What rarely works on a purchase: rolling closing costs into the loan. That's common on a refinance, but purchase loans generally don't allow it — concessions and credits are the workarounds.
The paperwork timeline
Two documents govern the whole process, and both exist to protect you:
- The Loan Estimate arrives within three business days of applying. Three pages, standardised across every lender — this is your comparison tool.
- The Closing Disclosure must reach you at least three business days before closing. Compare it against the Loan Estimate line by line; certain fees legally cannot increase, and others only within limits. Questioning a discrepancy is easiest before you sign, not after.
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How much are closing costs?
For buyers, closing costs typically run 2%–5% of the purchase price. On a $350,000 home that's roughly $7,000–$17,500, paid on top of your down payment. The range depends mostly on your state's taxes and title practices, and on your loan's origination fees.
What is included in closing costs?
Lender fees (origination, underwriting), third-party services (appraisal, credit report, title search and title insurance), government recording and transfer taxes, and prepaid items — the first year of homeowners insurance, several months of property taxes into escrow, and interest from closing to month end.
Can closing costs be rolled into the mortgage?
Sometimes. Refinances commonly allow it. On a purchase, you generally cannot finance closing costs directly, but you can ask the seller for a concession or take a lender credit — a slightly higher interest rate in exchange for the lender covering some costs.
Who pays closing costs, the buyer or the seller?
Both pay, but different items. Buyers pay lender fees, appraisal, title insurance and prepaids. Sellers typically pay the real estate commissions and their own transfer taxes. Sellers can also agree to contribute toward the buyer's closing costs, within limits set by the loan program.
