Buying a home is saving for the down payment? Many buyers are caught off guard by a different hurdle – closing costs. These one-time fees show up at the finish line, and they can run into thousands of dollars. Knowing what to expect keeps you in control of your purchase.
What Closing Costs Are and How Much You Pay
Closing costs are the final expenses you pay before the keys change hands. They cover lender charges and third-party services tied to your loan and property transfer.
You pay them at closing. They’re separate from your down payment.
Here is what most buyers face:
- Expect closing costs equal to 2% to 6% of your loan amount.
- On a $350,000 loan that equals $7,000 to $21,000.
- Some buyers report costs as high as 11% depending on loan type and location.
- More than half of buyers in a 2017 report said they were surprised by these fees.
Two Main Categories of Fees
Understanding the two big buckets of fees helps you plan and spot savings.
Lender and Broker Fees
These are charged by your mortgage lender. They include:
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- Application fee
- Loan origination fee (often 1%–2% of the loan)
- Underwriting and processing fees
- Administration charges
Federal law limits most of these charges to 3% of the loan amount.
Third-Party Fees
These pay for outside services required to close:
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- Appraisal
- Home inspection and pest inspection
- Survey
- Property taxes
- Homeowner’s insurance
- Title search and title insurance
- Recording and transfer fees
Almost every loan involves these costs in some form.
Two Documents You Must Read Closely
Federal law (the TILA-RESPA Rule) requires lenders to give you two clear forms. Reading them protects you from surprises.
Loan Estimate (LE)
- You get this within three business days of applying for a mortgage.
- It shows the estimated terms, risks, and costs of the loan.
- Page 2 itemizes closing costs.
- Look at Section A “Origination Charges” for lender fees.
- Look at Section C “Services You Can Shop For” to find savings.
Closing Disclosure (CD)
- You must get this at least three business days before you sign the loan.
- It shows the final loan terms and closing costs.
- Compare it to your Loan Estimate.
- Ask questions if anything changed.
- Major changes like an incorrect APR, a prepayment penalty, or a different loan type restart the three-day waiting period.
How to Lower Your Closing Costs
You have more control than you think. Proactive steps reduce the cash you need at closing.
Shop Around for the Best Rates
- Apply with multiple lenders and compare Loan Estimates. Credit pulls for mortgages within 45 days count as one hard inquiry.
- Shop for your own third-party services listed in Section C of the Loan Estimate. Title and settlement services are often the most expensive.
- Compare homeowner’s insurance quotes. Rates vary widely, and switching providers can save hundreds each year.
Negotiate with the Seller and Lender
- Ask the seller to pay part of your closing costs. This is called a seller concession. It works best in a buyer’s market or with homes that have sat on the market.
- Ask your chosen lender if they can reduce or waive some fees.
Use Timing and Assistance Programs
- Close at the end of the month. You’ll owe fewer days of prepaid interest at closing. Your first mortgage payment will come due sooner, but your upfront costs drop.
- Look for state and local programs that give grants or forgivable loans to cover closing costs for first-time buyers.
Evaluate “No-Closing-Cost” Loans
- The lender pays your closing costs in exchange for a higher interest rate. Your monthly payment goes up. This works best if you plan to refinance or sell in a few years.
Common Surprises at Closing
Even with a Closing Disclosure, some charges shift at the last minute. Be ready for:
- Prorated property taxes or HOA dues
- Adjustments for utilities or heating oil left in the tank
- Final recording fees
Your lender should give you a final cash-to-close figure one or two days before signing.
Why Professional Help Matters
Some states require a real estate attorney at closing. Even when not required, an attorney can:
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- Examine the title for hidden issues
- Review and negotiate your purchase contract
- Prepare the deed and other legal documents
- Represent your interests at the closing table
This small expense can protect you from costly mistakes.
Takeaway for First-Time Buyers
Closing costs are real money. Plan for them early.
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- Estimate them using 2%–6% of your loan amount.
- Read your Loan Estimate and Closing Disclosure carefully.
- Shop for services and compare lenders to find savings.
- Ask about grants, seller concessions, and timing strategies.
- Consider legal help to protect your interests.
Being prepared removes surprises and keeps you in control of your home purchase. What steps will you take today to get a clear picture of your closing costs before you make an offer?