What buyers pay at closing
Buyer closing costs typically run 2-5% of the purchase price. On a $400,000 home, that's $8,000-$20,000 on top of your down payment. The exact number depends on state, loan program, lender, and how much in prepaid items (taxes, insurance, interest) you owe.
Closing costs split into three categories: lender fees (origination, points, processing, underwriting), third-party fees (appraisal, title insurance, attorney, survey, inspection), and prepaid items (homeowners insurance, property tax escrow, prepaid interest, mortgage insurance premium). Recording fees and government transfer taxes are a fourth small category.
Lender fees (Section A on your Loan Estimate)
Lender fees are charged by your mortgage company to underwrite and close the loan. They include the origination fee (typically 0.5-1.5% of the loan), discount points (optional, each point lowers your rate ~0.25%), and processing/underwriting fees ($500-$1,500 typical).
Lender fees are the most negotiable category. If you have strong credit and shop multiple lenders, you can usually get a lower origination fee or a lender credit that offsets it. Always get Loan Estimates from at least three lenders on the same day and compare line by line.
Third-party fees (Section B/C on your Loan Estimate)
Third-party fees go to companies other than your lender — title company, appraiser, inspector, attorney, surveyor, and various government entities. Section B is fees the lender chose; Section C is fees you can shop for.
Major third-party fees: appraisal ($600-$800), title insurance lender's policy (~0.5% of loan), title insurance owner's policy (~0.4% of price, optional but recommended), settlement/attorney fee ($500-$1,500), survey ($300-$600 in states that require), home inspection ($400-$700 — paid before closing typically).
Prepaid items (Section F on your Loan Estimate)
Prepaid items are not really fees — they're cash you'll need at closing for future expenses. They include the first year of homeowners insurance premium (paid in advance), property tax escrow (typically 6-12 months collected upfront), prepaid interest (covering the partial month between closing and your first payment), and any upfront mortgage insurance premium.
Prepaids can be a meaningful chunk of total cash-to-close — sometimes 1-2% of the price on their own. They aren't really negotiable since they're your actual future obligations being collected ahead. But you can sometimes time your closing toward the end of the month to reduce prepaid interest.
How to reduce closing costs
Negotiate seller credits — sellers can contribute toward your closing costs up to limits (3-9% depending on loan type and down payment). Strong markets have less flexibility; soft markets often offer 1-3% concessions standard.
Use lender credits — accepting a slightly higher rate in exchange for lender-paid closing costs makes sense when you don't plan to keep the loan long enough to recover the cost difference. Run the break-even.
Shop your title insurance (in unregulated states), survey, and home inspection. State HFA assistance programs can cover closing costs. VA-eligible buyers have lower closing costs because VA caps origination at 1%.
Frequently asked questions
What's the difference between closing costs and a down payment?+
Your down payment is your equity contribution — money applied to the purchase price. Closing costs are fees and prepaids on top of the down payment. On a $400K home with 10% down, you bring $40K for down payment plus $8-20K for closing costs, totaling $48-60K to close.
Can I roll closing costs into the loan?+
On a refinance, yes — you can typically roll closing costs into the new loan balance. On a purchase, no — closing costs are paid at closing in cash, though seller credits, lender credits, and down-payment assistance programs can cover them. VA and FHA both allow some costs to be financed in specific ways.
Why is my title insurance so expensive?+
Title insurance is a one-time premium covering the entire time you own the home, so it's priced higher than monthly insurance products. In some states it's regulated (fixed price). In others it's competitive. Shop owner's title insurance in shoppable states — savings can be $500-$1,500. The lender's policy is required regardless.
Are closing costs tax-deductible?+
Some are, some aren't. Discount points are deductible in the year paid for purchase mortgages and over the loan life for refinances. Property tax escrow and prepaid interest are deductible when itemizing. Origination fees, title insurance, and most other closing costs are not deductible directly but increase your home's cost basis for capital gains purposes when you sell.