Closing costs are the fees and expenses associated with finalizing the purchase of a home. These costs are paid at closing and are separate from your down payment.
Understanding what closing costs include can help you budget for your home purchase and avoid surprises as you move toward closing.
A FSBO.com Loan Officer can help you estimate your closing costs and explain the fees associated with your mortgage.
What Are Closing Costs?
Closing costs are the expenses required to complete a real estate transaction. They are typically paid by the buyer, the seller, or shared between both parties, depending on the purchase agreement and local practices.
The total amount varies based on factors such as:
Purchase price
Loan type
Property location
Lender requirements
Negotiated seller concessions
Many buyers should expect closing costs to range from 2% to 5% of the home's purchase price, though actual costs can vary.
Common Buyer Closing Costs
Buyer closing costs may include:
Loan Origination Fees
Fees charged by the lender for processing and underwriting your mortgage.
Appraisal Fee
The cost of having the property's market value evaluated by a licensed appraiser.
Credit Report Fee
A fee for obtaining your credit history during the loan approval process.
Title Services
These may include:
Title search
Title insurance
Settlement or escrow services
These services help verify ownership and protect against certain title-related issues.
Recording Fees
Fees charged by local government offices to record the property transfer and mortgage documents.
Homeowners Insurance Premium
Many lenders require buyers to pay the first year's homeowners insurance premium or establish an escrow account at closing.
Property Taxes
Depending on the closing date and lender requirements, you may need to prepay a portion of your property taxes.
Prepaid Interest
Interest that accrues between your closing date and the beginning of your first mortgage payment.
Seller Closing Costs
Depending on the transaction, sellers may also be responsible for certain costs, such as:
Real estate commissions (if applicable)
Title-related fees
Transfer taxes (where applicable)
Existing mortgage payoff
Seller concessions negotiated in the purchase agreement
Seller expenses vary by state and the terms of the sales contract.
Can Sellers Help Pay Closing Costs?
Yes. In some transactions, buyers may negotiate seller concessions, where the seller agrees to pay some or all of the buyer's eligible closing costs.
The amount allowed depends on:
The loan program
Lender guidelines
The negotiated purchase agreement
Your lender and real estate professionals can explain any applicable limits.
How to Estimate Your Closing Costs
Before closing, your lender will provide a detailed estimate of your expected costs.
This estimate outlines:
Loan fees
Estimated taxes
Insurance costs
Escrow deposits
Government recording fees
Other settlement charges
Review these documents carefully and ask questions if anything is unclear.
Tips for Managing Closing Costs
To prepare for closing:
Budget for expenses in addition to your down payment.
Compare lender fees when shopping for a mortgage.
Ask about available lender credits or assistance programs.
Explore first-time homebuyer assistance programs if you qualify.
Review your closing disclosure before your closing appointment.
Planning ahead can help make the closing process smoother.
Frequently Asked Questions
Are closing costs included in my down payment?
No. Closing costs are generally separate from your down payment, although some loan programs may allow certain costs to be financed or covered through lender or seller credits.
When do I pay closing costs?
Closing costs are typically paid on the day your home purchase is finalized during the closing process.
Can closing costs be financed?
In some situations, certain loan programs may allow eligible closing costs to be financed into the loan amount. Availability depends on the loan type and lender guidelines.
Will I know my closing costs before closing?
Yes. Your lender will provide a Loan Estimate early in the mortgage process and a Closing Disclosure before closing, outlining the expected costs associated with your loan.
Can closing costs change?
Some costs may change slightly before closing due to adjustments in taxes, insurance premiums, prepaid interest, or other transaction-related expenses. Your lender will provide updated disclosures if required.