Closing Costs Explained — No Surprises

Closing costs are one of the most common sources of sticker shock for home buyers, especially first-timers. Most buyers focus on the down payment and forget to budget for the additional two to five percent of the purchase price typically required at closing. On a $300,000 home, that's potentially $6,000 to $15,000 in additional cash needed at the table.

Closing costs include lender fees (origination charges, underwriting fees, discount points if applicable), third-party fees (title search, title insurance, appraisal, home inspection, attorney fees where required), prepaid items (homeowner's insurance premium, prepaid mortgage interest, property tax escrow), and government fees (recording fees, transfer taxes).

Your lender is required to provide a Loan Estimate within three business days of receiving your application, which itemizes all expected closing costs. Three days before closing you'll receive a Closing Disclosure with the final numbers. Compare these carefully to each other and ask your lender to explain any significant changes or any items you don't understand.

You can negotiate some closing costs. Seller concessions — where the seller agrees to pay a portion of your closing costs — are a common negotiating tactic, especially in slower markets. You can also shop around for some third-party services like title insurance and settlement agents. Your lender's affiliated providers are not required — you have the right to comparison shop.