Closing Costs Explained: What You'll Pay and How to Lower Them
Closing costs are the fees and upfront payments due when you finalize a home purchase or refinance, often 2% to 5% of the loan. Here's what they include, who pays what, the difference between closing costs and cash to close, ways to lower them and how to avoid wire fraud at closing.
By Pond.com editors Updated 3 min read
Quick answer
- Closing costs are often 2% to 5% of the loan amount, though they vary widely by state and lender.
- They include lender fees, the appraisal, title insurance, government recording fees and transfer taxes, plus prepaid interest, taxes and insurance.
- Your cash to close is your closing costs plus your down payment, minus any credits and deposits already paid.
- You can lower them by comparing lenders, shopping for title services and negotiating seller credits.
- Always confirm wiring instructions by phone with your title company, using a number you already know.
Saving for a down payment is only part of buying a home. Closing costs can add thousands of dollars more, and they catch many first-time buyers by surprise. Knowing what they are helps you budget and spot fees you can cut.
This article is general information, not financial or legal advice.
How much are closing costs?
They're often 2% to 5% of the loan amount. On a $360,000 loan, that's roughly $7,200 to $18,000. Where you live makes a big difference, mainly because of state and local transfer taxes and title costs.
What's included
| Cost | What it's for |
|---|---|
| Origination fees and points | The lender's charges for making the loan, and any points to lower your rate |
| Appraisal | An independent estimate of the home's value for the lender |
| Credit report | The lender's credit check |
| Title search and title insurance | Checking for problems with ownership, and insurance for the lender and, optionally, for you |
| Settlement or escrow fee | The title or escrow company running the closing |
| Recording fees and transfer taxes | Government charges to record the sale and, in many places, a tax on it |
| Prepaid interest | Interest from closing day to the end of that month |
| Initial escrow deposit | A few months of property tax and insurance held for future bills |
| Homeowners insurance | Usually the first year's premium, paid upfront |
| Other possible costs | Home inspection, survey, pest inspection, HOA transfer fees |
Some of these, like prepaid interest and the escrow deposit, aren't really fees. They're bills you'd pay anyway, paid in advance.
Closing costs vs cash to close
Your cash to close is the amount you actually bring to closing:
Closing costs + down payment − credits − earnest money already paid
Your Loan Estimate and Closing Disclosure both show it on page 1.
How to lower your closing costs
- Compare lenders. Origination charges vary a lot. See how to compare mortgage offers.
- Shop for services you're allowed to choose, listed in Section C of your Loan Estimate, such as title services.
- Ask the seller for credits toward your costs, especially when homes are slow to sell.
- Take lender credits in exchange for a slightly higher rate, if you won't keep the loan for long.
- Close near the end of the month to reduce prepaid interest, though it doesn't lower your total cost, only the upfront amount.
- Look for help. Many state and local programs help first-time buyers with closing costs. See first-time home buyer programs.
Beware of wire fraud
Scammers send fake emails that look like they're from your title company or agent, with new wiring instructions. Once the money is wired, it's often gone for good.
- Call your title company to confirm the instructions before you wire anything, using a phone number from your contract or their official website, not from the email.
- Be suspicious of any last-minute change to where to send money.
- If something goes wrong, call your bank immediately to try to stop the transfer, then report it to the FBI at ic3.gov.
Common questions
On a purchase, usually not directly, though you can take a slightly higher rate in exchange for lender credits that cover some costs. On a refinance, closing costs can often be added to the new loan balance, which means paying interest on them.
Both pay some. Buyers usually pay most loan-related costs, and sellers usually pay real estate agent commissions and some title and transfer costs, but customs vary by state and everything can be negotiated in the purchase contract.
Your lender must give you a Closing Disclosure at least three business days before closing. It shows your final costs and cash to close. Compare it with your Loan Estimate and ask about anything that went up.