What Are Closing Costs? A Breakdown of What You'll Actually Pay

Closing costs are the fees and prepaid expenses due when you finalize a home purchase, separate from your down payment. They typically add up to 2-5% of the loan amount, which on a $400,000 loan can mean $8,000-$20,000 due at closing — a number that surprises a lot of first-time buyers who budgeted only for the down payment.

What's Typically Included

• Loan origination fee: what the lender charges to process and underwrite the loan
• Appraisal fee: an independent valuation confirming the home is worth what you're paying
• Title search and title insurance: confirms the seller actually owns the property free of undisclosed claims
• Attorney or escrow fees, depending on your state's closing process
• Recording fees: what the local government charges to record the new deed and mortgage
• Prepaid property taxes, homeowners insurance, and mortgage interest, often collected upfront into escrow
• Transfer taxes, charged by some states and municipalities on the sale itself

Who Pays What

Buyers typically cover loan-related fees (origination, appraisal, credit report) and their own title insurance policy. Sellers commonly pay real estate agent commissions and, in some states, the owner's title insurance policy. Exact splits vary significantly by state and are often negotiable as part of the purchase contract — asking for seller-paid closing costs is a normal part of an offer, especially in a buyer's market.

How to Reduce Closing Costs

• Shop multiple lenders — origination fees and title/escrow costs can vary meaningfully between lenders for the same loan
• Negotiate seller credits toward closing costs as part of your purchase offer
• Ask about lender credits: accepting a slightly higher interest rate in exchange for the lender covering some closing costs
• Look into state and local down payment/closing cost assistance programs, especially for first-time buyers
• Time your closing near the end of the month to minimize prepaid daily interest owed before your first mortgage payment