Closing costs are the fees you pay at settlement on top of your down payment. They include lender fees (origination, points, processing, underwriting), third-party fees (appraisal, title insurance, survey, attorney where required), prepaid items (homeowners insurance, the first deposit into your escrow account), and government recording charges.
Total closing costs commonly run in the low single digits as a percentage of the purchase price, though the exact figure depends heavily on your state, loan program, lender, and how much you owe in prepaid items at closing.
How it works
On a $400,000 purchase, closing costs in the thousands to low tens-of-thousands range are typical — the exact figure shown on your Loan Estimate is the number to trust, not a rough national average. Title insurance, recording fees, and transfer taxes vary meaningfully by state and even by county.
Prepaid items are often the most underestimated piece: you're funding the first months of your escrow account (property tax and insurance) and often paying the first year of homeowners insurance upfront, in addition to the lender and third-party fees themselves.
You can offset closing costs three ways: seller credits negotiated as part of the purchase contract, lender credits in exchange for a slightly different rate, and down-payment or closing-cost assistance programs available in many areas. Your Loan Estimate shows the exact, itemized breakdown line by line.
When it matters to you
Closing costs matter the moment you're budgeting for a purchase — many buyers focus only on the down payment and are caught off guard by the separate cash needed for closing.
They matter again any time you're weighing a refinance, since the break-even calculation for whether a refinance is worth it depends entirely on how much you'll actually pay in closing costs.
Common mistakes
- Budgeting only for the down payment and forgetting closing costs are a separate, additional cash requirement.
- Not asking about seller credits during negotiation, especially in a buyer's market where sellers may be more willing to offer them.
- Assuming closing costs are the same everywhere — state and local fees, taxes, and title requirements vary significantly.
- Waiting until the Closing Disclosure to review the fee breakdown instead of comparing it against the Loan Estimate as soon as it arrives.
FAQs
What's included in closing costs?
Lender fees (origination, points, underwriting), third-party fees (appraisal, title insurance, survey), prepaid items (insurance, initial escrow deposit), and government recording and transfer charges.
Can the seller pay my closing costs?
Often yes, through a negotiated seller credit written into the purchase contract, though the loan program and lender may cap how much of a credit is allowed.
Why do closing costs vary so much by state?
Title insurance rules, transfer taxes, recording fees, and even which professionals are required to be involved in closing differ from state to state, which changes the total significantly.