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When I first started working in mortgage project management, one of the biggest surprises I saw borrowers face was the closing cost shock. People would save diligently for their down payment, get excited about their monthly mortgage payment estimate, and then receive their Loan Estimate only to discover they needed several thousand dollars more just to close. That moment of panic is completely avoidable with proper planning.
Here's the thing about closing costs: they're not optional, they're not going away, and they can significantly impact your ability to buy a home. But they don't have to be a mystery. Understanding exactly what you'll pay and why you're paying it puts you back in control of your home buying journey.
That's where our Mortgage Closing Cost Calculator comes in. Located at the top of this page, it gives you a realistic estimate of your total closing costs based on your loan amount, property location, and loan type. Think of it as your financial planning companion, the tool that helps you see a more complete picture before you start house hunting.
In this guide, I'm going to walk you through everything you need to know about closing costs. We'll break down every fee, explain why certain costs exist, show you real calculations for different loan amounts, and most importantly, give you actionable strategies to reduce these expenses. By the end, you'll know exactly how much cash you need to bring to closing and how to make those dollars work harder for you.
Let's simplify this together.
Closing costs are the fees and expenses you pay to finalize your mortgage loan and complete your home purchase. They're separate from your down payment and cover all the services required to verify, process, and legally transfer property ownership from the seller to you.
Think of closing costs as the price of doing business in real estate. When you buy a home, multiple professionals work behind the scenes to make sure everything is legitimate, properly valued, and legally sound. Appraisers assess the property's value. Title companies research ownership history and protect against claims. Attorneys or settlement agents handle the paperwork. Lenders process and underwrite your application. Local governments record the transaction. Each of these services costs money, and collectively they add up to your closing costs.
According to the Consumer Financial Protection Bureau's 2024 analysis, median closing costs were $6,000 in 2022. However, from 2021 to 2023, median total loan costs for home mortgages increased by over 36%, driven largely by rising fees for credit reports, appraisals, and title services (Consumer Financial Protection Bureau, "CFPB Launches Inquiry into Junk Fees in Mortgage Closing Costs," accessed November 6, 2025, https://www.consumerfinance.gov/about-us/newsroom/cfpb-launches-inquiry-into-junk-fees-in-mortgage-closing-costs/).
Here's what makes closing costs different from your down payment: your down payment is equity you're building in the home. It's your money going toward ownership. Closing costs, on the other hand, are transactional expenses. They don't increase your equity, they're simply the cost of getting your loan approved and the home transferred to your name.
You'll typically pay most closing costs on closing day, the final step in your home purchase when you sign all the loan documents and officially become a homeowner. Some fees, like the appraisal and credit report, may be paid earlier in the process. Your lender will provide a detailed breakdown of all costs at least three business days before closing through a document called the Closing Disclosure.
The confusion around closing costs often stems from their sheer number. You might encounter 20 to 30 different line items, each with its own purpose and cost. Some fees go to your lender, some to third-party service providers, some to government offices, and some are prepaid expenses you'll owe anyway as a homeowner. Understanding who benefits from each fee helps you identify which costs might be negotiable and which are fixed.
Let's break down every component of your closing costs so you know exactly where your money goes. I'm going to organize these into six main categories, then dig into the specific fees within each.
These are charges from your mortgage lender for processing and underwriting your loan application. They typically represent the second-largest category of closing costs after title services.
The origination fee is what your lender charges to create your mortgage. Most lenders charge between 0.5% and 1% of your total loan amount. For a $300,000 loan, that's $1,500 to $3,000. This fee covers the administrative work of processing your application, pulling your credit, verifying your income and employment, and preparing all the loan documents.
Here's something interesting from Urban Institute research: origination fees don't scale proportionally with loan size. According to Urban Institute analysis of Fannie Mae data, origination fees represent 1.03% of the loan amount for a $97,000 loan ($999) compared with just 0.18% for a $679,000 loan ($1,222). This means if you're taking out a smaller loan, origination fees hit harder relative to your loan amount (Urban Institute, "What Components Make Up Closing Costs?" accessed November 6, 2025, https://www.urban.org/urban-wire/what-components-make-closing-costs).
At AmeriSave, we structure our origination fees transparently, with clear breakdowns provided upfront in your Loan Estimate so you're never guessing what you'll pay.
Some lenders charge an application fee to cover the upfront costs of processing your loan request. This fee varies by lender but commonly falls in the several-hundred-dollar range. This fee is often paid when you submit your application, before you've even received loan approval. Not all lenders charge this fee, so it's worth asking about when you're shopping for mortgages.
The underwriting fee, usually $300 to $750, pays for the detailed review of your financial situation and the property. An underwriter examines your credit report, income documentation, asset statements, and the appraisal report to determine whether you meet the lender's approval criteria. This is arguably one of the most important steps in the mortgage process because the underwriter makes the final decision on your loan.
Processing fees, ranging from $300 to $900, cover the administrative work of gathering and verifying all your loan documents. A loan processor coordinates between you, your employer, your bank, the title company, and other parties to compile everything the underwriter needs.
If you choose to lock your interest rate (which protects you from rate increases during your loan process), some lenders charge a rate lock fee. This might be a flat fee of several hundred dollars or a percentage of your loan amount. Rate locks typically last 30 to 60 days, with longer lock periods costing more.
Discount points are optional fees you can pay to lower your interest rate. Each point costs 1% of your loan amount and typically reduces your rate by 0.25%. On a $300,000 loan, one point costs $3,000 and might drop your rate from 7% to 6.75%. Whether this makes sense depends on how long you plan to own the home. We'll dig deeper into this calculation later.
Title-related fees typically represent the single largest category of closing costs. According to Urban Institute research, lender title fees and title insurance make up the largest portion of total costs for mortgages between $400,000 and $500,000 (Urban Institute, "What Components Make Up Closing Costs?" accessed November 6, 2025, https://www.urban.org/urban-wire/what-components-make-closing-costs).
Before you can purchase a home, someone needs to verify that the seller actually owns it and has the legal right to sell it. The title search involves researching public records to trace the property's ownership history and identify any claims, liens, or encumbrances on the title. Costs vary by location and property complexity.
Your lender will require you to purchase a lender's title insurance policy, which protects them (not you) if someone later comes forward with a valid claim to the property. The cost varies significantly by state and property value. This is a one-time premium paid at closing, and the policy remains in effect until your mortgage is paid off.
An owner's title insurance policy protects you from title defects that weren't discovered during the title search. This is optional but highly recommended. The cost is similar to the lender's policy and varies by state and property value. It protects you for as long as you or your heirs own the property. In some states, the seller traditionally pays for the owner's policy, but this varies by local custom.
The settlement or closing fee goes to the title company or attorney who conducts your closing. This covers their time facilitating the meeting, explaining documents, collecting and disbursing funds, and ensuring all paperwork is properly executed. Costs vary by provider and location.
In some states, real estate attorneys are required to handle closings. In others, they're optional. Attorney fees vary widely by location and complexity. If you're in an "attorney state" like Massachusetts, New York, or Georgia, this is a non-negotiable cost.
In escrow states (common on the West Coast), an escrow company holds funds and documents until all conditions of the sale are met. Escrow fees vary by transaction size and may be split between buyer and seller according to local custom.
These are services provided by professionals who aren't your lender but are necessary to complete your transaction.
Lenders require a professional appraisal to confirm the home's value supports your loan amount. Appraisal fees vary by location and property type but typically range from $400 to $600 for a standard single-family home. More complex properties, like multi-unit buildings or homes in rural areas, may cost more.
You pay for the appraisal, but the report actually belongs to your lender. If you want your own copy, you have the right to request it.
Your lender will pull a tri-merge credit report (combining data from all three major credit bureaus) to evaluate your creditworthiness. This has become a hot-button issue in the mortgage industry. According to Federal Register documents, credit report costs have increased markedly in recent years. One midsize lender reported an increase for tri-merge credit reports from $50 to $110 in just two years, while a large lender reported an increase from under $30 to over $60 (Federal Register, "Request for Information Regarding Fees Imposed in Residential Mortgage Transactions,"). Most borrowers pay $30 to $100 for credit report fees at closing.
While not technically a closing cost (since it's optional and typically paid before closing), home inspection fees are an important part of your total home buying expenses. A thorough home inspection typically costs several hundred dollars and can save you from buying a property with serious defects. I always recommend getting one, even though you can legally waive it.
Some loan types and regions require pest inspections. These check for termites, wood-boring insects, and other pests that could damage the property. Costs are generally modest compared to other closing expenses.
Some lenders require a property survey to verify boundary lines and confirm there are no encroachments. Survey costs vary widely by location and property size.
Lenders must determine whether your property is in a FEMA-designated flood zone. The flood certification fee, usually $15 to $25, pays for this check. If your property is in a flood zone, you'll be required to purchase flood insurance.
These are non-negotiable fees paid to government entities to record your transaction and transfer ownership.
Your local county office charges recording fees to officially document the property transfer and your new mortgage in public records. These fees vary by jurisdiction but typically range from $100 to $250.
Transfer taxes (also called deed stamps or documentary stamps) are charged by state or local governments when property ownership changes hands. These vary dramatically by location. Some states have no transfer tax, while others charge 1% to 2% of the purchase price. Transfer tax responsibility varies by local custom, sometimes paid by the buyer, sometimes by the seller, sometimes split.
According to Urban Institute research, prepaid expenses account for about half the costs the average homeowner pays at closing. However, these aren't technically closing costs in the traditional sense because they're regular expenses you'd pay anyway as a homeowner (Urban Institute, "What Components Make Up Closing Costs?" accessed November 6, 2025, https://www.urban.org/urban-wire/what-components-make-closing-costs).
Most lenders require you to prepay your first year's homeowners insurance premium at closing. You'll also fund an escrow account with additional insurance premiums. Premium amounts vary significantly depending on your location, property value, and coverage level. You'll also fund an escrow account with 2 to 3 months of additional insurance premiums.
Property taxes are paid in advance or arrears depending on your local jurisdiction. At closing, you'll typically prepay several months of property taxes and fund an escrow account so your lender can pay taxes on your behalf when they come due.
You'll pay interest for the period between your closing date and the end of the month. This is why closing at the end of the month costs less in prepaid interest than closing early in the month. If you close on the 15th, you'll prepay 15 days of interest; if you close on the 28th, you'll prepay just 2 days.
If you're putting down less than 20% on a conventional loan, you'll pay PMI. Some lenders require you to prepay 2 to 3 months of PMI premiums at closing, in addition to funding an ongoing escrow account.
If you're buying a condo or home in a community with a homeowners association, you may need to prepay several months of HOA dues at closing.
These costs aren't required but may provide valuable protection.
A home warranty covers repairs and replacements of major systems and appliances. Annual premiums vary by coverage level and provider. Some sellers offer to pay for a home warranty as an incentive, while some buyers purchase their own for peace of mind.
While I listed this earlier under title services, I want to emphasize that owner's title insurance is technically optional (though your lender's policy is not). Given that it provides lifetime protection for what's likely your biggest investment, most experts recommend purchasing it.
Now that you understand every component, let's look at real numbers for different loan amounts.
Let's move from theory to practice. Here's what closing costs actually look like for different loan amounts, with worked calculations showing exactly where your money goes.
According to Urban Institute data, home buyers taking out loans between $400,000 and $500,000 can expect to pay between $10,500 and $21,000 at closing, excluding prepaid expenses (Urban Institute, "What Components Make Up Closing Costs?" accessed November 6, 2025, https://www.urban.org/urban-wire/what-components-make-closing-costs).
The typical range for closing costs is 2% to 5% of your loan amount. However, this varies based on your location, loan type, and the specific fees in your transaction. Let me show you three detailed scenarios.
Total closing costs: $5,000 to $10,000 (2.5% to 5%)
Here's a realistic breakdown at the midpoint (3.5% = $7,000):
Total: $8,725
Notice how the fixed costs like appraisal, credit report, and recording fees represent a larger percentage of a smaller loan. That's why closing costs as a percentage hit harder when you're borrowing less.
Total closing costs: $8,750 to $17,500 (2.5% to 5%)
Here's a midpoint breakdown (3.5% = $12,250):
Total: $12,266
Total closing costs: $12,500 to $25,000 (2.5% to 5%)
Here's a midpoint breakdown (3.5% = $17,500):
Total: $18,608
Looking at these scenarios, several patterns emerge.
First, percentage-based fees like origination charges increase proportionally with your loan amount. But fixed fees like appraisals, credit reports, and recording charges stay relatively constant regardless of whether you're borrowing $200,000 or $500,000.
Second, prepaid items can easily represent 40% to 50% of your total costs at closing. The good news? You're not losing this money; you're just paying obligations in advance.
Third, location matters enormously. I'm showing you national averages here, but if you're buying in a high-tax state like New Jersey or a state with high transfer taxes, your costs could be significantly higher. Conversely, if you're in a lower-cost state, you might be on the lower end of these ranges.
The closing cost calculator at the top of this page takes your specific loan amount and location into account to give you a more accurate estimate than these general scenarios.
Not all mortgages are created equal when it comes to closing costs. Your loan type significantly affects both the total amount you'll pay and who can help you pay it. Let's break down the four main loan types.
Conventional loans are mortgages not backed by the federal government. They're offered by private lenders and typically conform to Fannie Mae and Freddie Mac guidelines.
Typical Closing Costs: 2% to 5% of loan amount
Unique Costs: If you're putting down less than 20%, you'll pay PMI. Some lenders charge this as an upfront premium (which becomes part of your closing costs), while others charge it monthly.
Seller Concession Limits: This is where it gets interesting. Fannie Mae sets limits on how much a seller can contribute toward your closing costs, and these limits vary based on your down payment. According to Fannie Mae's Interested Party Contributions guidelines: when your loan-to-value ratio exceeds 90% (meaning you're putting down less than 10%), sellers can contribute up to 3% of the sales price toward your closing costs. When your LTV is between 75% and 90% (10% to 25% down payment), sellers can contribute up to 6%. When your LTV is below 75% (more than 25% down payment), sellers can contribute up to 9% (Fannie Mae, "Interested Party Contributions,")
For investment properties, the limit is just 2% regardless of your down payment.
Here's a real example: You're buying a $400,000 home with 5% down ($20,000). Your LTV is 95%, so you're in the highest ratio bracket. The seller can contribute up to $12,000 (3% of $400,000) toward your closing costs. If your actual closing costs are $10,000, the seller can pay all of them. If your closing costs are $14,000, the seller can pay $12,000 and you'll pay the remaining $2,000.
AmeriSave offers competitive conventional loan options with flexible down payment requirements starting at 3%, helping you preserve cash for closing costs and moving expenses.
FHA loans, insured by the Federal Housing Administration, are designed for borrowers with lower credit scores or smaller down payments.
Typical Closing Costs: Similar to conventional loans (2% to 5% of loan amount), but with an additional required cost.
Unique Costs: The big difference with FHA loans is the Upfront Mortgage Insurance Premium (UFMIP), which is 1.75% of your base loan amount. On a $300,000 loan, that's $5,250. You can pay this at closing or roll it into your loan amount. In addition to the UFMIP, you'll pay annual mortgage insurance premiums (MIP) divided into monthly payments.
Seller Concession Limits: FHA is more generous than conventional loans when it comes to seller help. Sellers can contribute up to 6% of the home's purchase price toward your closing costs, regardless of your down payment amount. This is a significant advantage for FHA borrowers who need help covering closing expenses.
Other Considerations: FHA loans require both an appraisal and an inspection by an FHA-approved appraiser, which may cost slightly more than a conventional appraisal.
AmeriSave's FHA loan program helps first-time buyers navigate the mortgage insurance requirements while maximizing their purchasing power through careful cost analysis.
VA loans, guaranteed by the Department of Veterans Affairs, offer outstanding benefits to eligible veterans, active-duty service members, and certain surviving spouses.
Typical Closing Costs: Generally lower than conventional or FHA loans
Unique Costs: Instead of mortgage insurance, VA loans charge a funding fee that varies based on your service history, down payment, and whether it's your first VA loan. For first-time users with no down payment, the funding fee is 2.15% of the loan amount (as of 2025). For subsequent use, it's 3.3%. Veterans with service-connected disabilities are exempt from the funding fee entirely.
On a $300,000 loan, a first-time VA borrower would pay a $6,450 funding fee. Like the FHA's UFMIP, this can be rolled into your loan amount.
Prohibited Fees: Here's where VA loans really shine. The VA prohibits lenders from charging veterans certain fees that other borrowers must pay, including attorney fees, origination fees exceeding 1% of the loan amount, and various processing charges. This can save you several hundred to over a thousand dollars compared to other loan types.
Seller Concession Limits: Sellers can pay up to 4% of the home's purchase price toward your closing costs. While this is less than FHA's 6% limit, remember that VA loans have fewer allowable closing costs to begin with, so 4% often covers everything.
Other Considerations: VA loans don't require PMI, appraisal fees are typically lower, and the VA limits what lenders can charge for many services.
USDA loans, backed by the U.S. Department of Agriculture, help buyers purchase homes in eligible rural and suburban areas.
Typical Closing Costs: Similar to conventional loans (2% to 5% of loan amount)
Unique Costs: USDA loans charge an upfront guarantee fee of 1% of the loan amount, plus an annual fee of 0.35% divided into monthly payments. On a $250,000 loan, you'd pay $2,500 upfront (which can be rolled into the loan).
Seller Concession Limits: Sellers can contribute up to 6% of the home's purchase price toward your closing costs, matching FHA's generous limits.
Other Considerations: USDA loans require homes to be in USDA-eligible areas, and borrowers must meet income limits. However, USDA loans allow 100% financing (no down payment required), making them attractive despite the guarantee fees.
Here's a quick comparison for a $300,000 loan with 5% down (where applicable):
Which loan type has the lowest closing costs? It depends on your specific situation. VA loans often have the lowest out-of-pocket costs for eligible veterans, especially those exempt from the funding fee. Conventional loans can be cost-effective if you have a larger down payment. FHA and USDA loans have higher fees but more generous seller concession limits, which can offset the higher costs if you can negotiate seller help.
Understanding who typically pays which closing costs helps you negotiate more effectively and avoid surprises. But here's the reality: closing cost responsibility is more negotiable than many buyers realize.
In 2024, the National Association of Realtors reached a settlement that changed how real estate agent commissions work. Previously, sellers almost always paid both their agent's commission and the buyer's agent's commission. The settlement eliminated the requirement that sellers pay buyer agent commissions through the MLS system.
Here's what this means for closing costs: buyer agent commissions are now negotiable between buyers and their agents. Some buyers may now need to pay their own agent's commission (typically 2.5% to 3% of the purchase price), which would significantly increase buyer closing costs.
However, Fannie Mae and Freddie Mac issued important guidance clarifying that when sellers continue to pay buyer agent fees according to local custom (which remains common), these payments don't count toward the interested party contribution limits I mentioned earlier. According to Fannie Mae's statement, "buyer agent fees have historically been fees customarily paid by the property seller or property seller's real estate agent, and as such, they are currently excluded from financing concession limits" (Fannie Mae, "Selling Notice: Real Estate Commissions and Interested Party Contributions," accessed November 6, 2025).
In practice, many sellers still pay buyer agent commissions to make their homes more attractive to buyers, but this is now explicitly negotiated rather than assumed.
Seller concessions are your most powerful tool for reducing your out-of-pocket closing costs. These are amounts the seller agrees to contribute toward your closing costs as part of the purchase agreement.
You can't just ask for free money. Seller concessions are typically structured in one of two ways:
From the seller's perspective, these scenarios net them similar amounts ($390,000 either way). But from your perspective, the first scenario preserves your cash and increases your loan amount by $10,000.
Remember those interested party contribution limits we discussed? You can't exceed those limits no matter how much the seller wants to help. If you're getting a conventional loan with 5% down, the maximum seller contribution is 3% of the purchase price. On a $400,000 home, that's $12,000 maximum, even if the seller offers $15,000.
Also, seller contributions can't exceed your actual closing costs. If your total closing costs are $8,000 and the seller agrees to pay $10,000, you can only use $8,000 of that contribution. The excess can't go toward your down payment or into your pocket.
Here's what I want you to remember: nearly every aspect of your real estate transaction is negotiable. I've seen buyers negotiate seller-paid closing costs, buyers negotiate reduced lender fees, buyers negotiate lower title insurance rates by shopping around, and buyers negotiate reduced attorney fees.
The key is knowing what's customary in your market (your real estate agent should guide you here), understanding what you can legally ask for (within IPC limits), and being willing to walk away if the numbers don't work.
Now let's talk about the practical strategies that actually save you money. Some of these tactics work in every market; others depend on your specific situation. I'm going to give you the full playbook.
I touched on seller concessions earlier, but let me give you the tactical approach to negotiating them successfully.
The best time to request seller concessions is in your initial offer. Don't wait until after the inspection or during negotiations. Present a complete package upfront: "We're offering $X with $Y in seller-paid closing costs." This prevents the seller from feeling nickel-and-dimed later in the process.
Sellers are more receptive to concession requests when you provide a legitimate reason:
If you didn't request concessions in your initial offer but the home inspection reveals issues, you have renewed leverage. Many sellers prefer giving you a closing cost credit rather than making repairs themselves, since credits are simpler and cheaper for them (no contractor coordination, no supervision, no quality concerns).
Let's work through a real scenario. You're buying a $350,000 home with 5% down ($17,500). Your closing costs are estimated at $10,500. You have two negotiation options.
Option A: Offer $350,000 with $10,500 in seller-paid closing costs
Option B: Offer $340,000 with no seller concessions
Option A gives you a higher loan amount and slightly higher monthly payments, but it preserves $9,700 of your cash. Option B gives you a lower loan amount and lower monthly payments, but requires $9,700 more cash upfront.
Which is better? It depends on your situation. If you're cash-strapped now but expect your income to grow, Option A makes sense. If you want the lowest possible monthly payment and have the cash available, Option B works better.
Lender credits are an often-misunderstood tool that can significantly reduce your closing costs, though they come with a trade-off.
Your lender offers to pay a portion of your closing costs in exchange for you accepting a slightly higher interest rate. For example, instead of getting 7% with $10,000 in closing costs, you might get 7.25% with only $5,000 in closing costs (the lender covers the other $5,000).
At AmeriSave, we can help you evaluate whether trading a slightly higher interest rate for lender credits makes sense for your specific financial situation.
Lender credits are smart when:
Skip lender credits if:
Let's calculate a real example. You're getting a $300,000 mortgage.
Scenario A: 7.00% rate, $9,000 in closing costs
Scenario B: 7.25% rate, $4,000 in closing costs ($5,000 lender credit)
You save $5,000 upfront but pay $51 more per month. After 98 months (just over 8 years), you've paid $5,000 more in interest, reaching the break-even point. If you keep the loan beyond 8 years without refinancing, you lose money. If you refinance or sell before 8 years, you come out ahead.
Not all closing costs are controlled by your lender. Some services are "shop-pable," meaning you can get quotes from multiple providers and choose the cheapest.
According to the Consumer Financial Protection Bureau's disclosure requirements, lenders must allow you to shop for:
You can't shop for:
When your lender provides a Loan Estimate, it includes a "Shopping List" section showing services you can shop for. Don't ignore this section. Here's your action plan:
Title insurance rates can vary significantly. In my experience working on mortgage projects, I've seen title insurance quotes for the same property range from $1,200 to $2,100. That's $900 in potential savings for one phone call. Similarly, homeowners insurance quotes can vary by 30% to 50% for identical coverage.
Even if shopping saves you just $500 on title insurance, $300 on homeowners insurance, and $100 on your home inspection, that's $900 back in your pocket.
This is one of the easiest closing cost reduction strategies, yet most buyers don't know about it.
Remember prepaid interest? You pay interest from your closing date through the end of the month. If you close early in the month, you prepay a lot of interest. If you close late in the [BA1] month, you prepay very little.
Example: $300,000 loan at 7% interest
That's real money back in your pocket just for scheduling your closing a few weeks later.
Closing later in the month saves on prepaid interest but means your first mortgage payment comes sooner. If you close on the 28th, your first payment is due about 30 days later (around the 1st of the second month after closing). If you close on the 5th, your first payment isn't due for nearly 60 days. Some buyers prefer the later closing date for this breathing room.
Property taxes are typically paid in advance or in arrears depending on your jurisdiction. If taxes are paid in arrears and you're closing right before a tax payment is due, the seller may owe you money (credit at closing). If you're closing right after the seller just paid taxes, you may owe them money (additional closing cost). Your title company will prorate these taxes to the day of closing.
Strategic buyers can sometimes save money by timing their closing to minimize property tax prorations, though this is a smaller factor than prepaid interest.
If you qualify for down payment assistance or grants, these funds can often be used for closing costs as well.
The Department of Housing and Urban Development offers various programs that provide closing cost assistance, particularly for first-time home buyers and low-to-moderate income buyers. HUD's Good Neighbor Next Door program, for example, offers 50% discounts on homes for law enforcement officers, teachers, firefighters, and emergency medical technicians. These discounts significantly reduce both purchase price and associated closing costs.
Every state has a Housing Finance Agency (HFA) that offers programs for first-time home buyers. Many provide grants or forgivable loans specifically for closing costs. These programs typically require you to:
Some employers offer home buyer assistance programs as a recruitment or retention benefit. These might include:
If you work for a hospital system, university, government agency, or large corporation, ask your HR department about home buyer assistance.
Organizations like NeighborWorks America, Habitat for Humanity, and local community development corporations offer home buyer assistance programs. These are often targeted to specific geographic areas or populations but can provide significant closing cost help.
Programs vary, but here are typical ranges:
Some buyers combine multiple programs, though you'll need to verify that each program allows "stacking" with other assistance.
Some lenders will negotiate certain fees, especially if you're a strong borrower or they're competing for your business.
The best leverage is competition. If you have Loan Estimates from multiple lenders, show them to your preferred lender and ask if they can match or beat the fees. Say something like: "I really want to work with you, but Lender B is offering $500 less in origination fees. Can you match that?"
Strong borrowers (high credit scores, stable income, low debt-to-income ratios) have more negotiating power because lenders want their business and know they'll successfully close.
Now that you understand every component of closing costs and strategies to reduce them, let's talk about how to actually use the calculator at the top of this page to plan your home purchase.
To get an accurate estimate from the calculator, gather these details:
The calculator takes your inputs and estimates closing costs based on:
The calculator will typically show you:
Run the calculator multiple times with different inputs to understand how variables affect your costs.
These comparisons help you decide which loan type and down payment strategy makes the most sense for your situation.
Here's what the calculator can't do:
Think of the calculator as your planning tool, not your final answer. It gives you a realistic ballpark figure so you can budget appropriately and avoid surprises.
Once you've narrowed down your home search and are ready to get serious, apply for pre-approval with one or more lenders. They'll provide an official Loan Estimate that's legally required to be accurate within certain limits. This is your true closing cost document, not the calculator.
The three-day rule: Lenders must provide your Loan Estimate within three business days of your application. This document is legally binding in many respects, meaning the lender can't substantially increase most fees between the Loan Estimate and closing without a valid change of circumstance[BA2] .
When I'm working with our team on mortgage project planning, I always emphasize the importance of running multiple scenarios before making decisions. The calculator is your friend here. Spend 15 minutes playing with different purchase prices, down payment amounts, and loan types. You'll quickly develop intuition about how closing costs scale and which variables have the biggest impact on your out-of-pocket expenses. This knowledge makes you a much more effective negotiator when you're ready to make an offer.
These two documents control your closing cost experience. Understanding them inside and out protects you from overcharges and surprises.
The Loan Estimate is a standardized three-page form that lenders must provide within three business days after you apply for a mortgage. This isn't marketing material or a preliminary quote; it's a legally binding disclosure that sets expectations for your closing costs.
According to the CFPB's assessment of the TRID (TILA-RESPA Integrated Disclosure) rule, this standardized format "improved consumers' ability to locate key information and compare terms and costs" across different lenders (Consumer Financial Protection Bureau, "TRID Assessment," accessed November 6, 2025).
The first page shows your loan amount, interest rate, monthly principal and interest payment, and whether these can change over time. It also shows estimated taxes, insurance, and assessments.
Key sections:
This is where all your fees appear, organized into sections:
Section A - Origination Charges: All fees your lender charges (origination fee, points, application fee, underwriting fee, processing fee)
Section B - Services You Can't Shop For: Third-party fees your lender requires you to use their selected providers for (appraisal, credit report, flood certification, tax monitoring)
Section C - Services You Can Shop For: Third-party fees where you can choose providers (title search, title insurance, settlement services, survey)
Section D - Total: Sum of all costs, plus total loan costs (origination charges + services you can't shop for) and total other costs (everything else)
Section E - Taxes and Government Fees: Recording fees, transfer taxes, other government charges
Section F - Prepaids: Homeowners insurance premium, prepaid interest, property tax reserves, mortgage insurance reserves
Section G - Initial Escrow Payment: Funds you must deposit for property taxes, homeowners insurance, and other periodic payments
Section H - Other: HOA fees, home warranty, owner's title insurance (if optional)
Section I [BA3] [BA4] – Total Other Costs: D + I, lender credits
The third page includes:
The Closing Disclosure is a five-page form you receive at least three business days before closing. It shows your final loan terms and closing costs. This is the document you'll use to verify everything is correct before you sign at closing.
The CD must be very similar to your LE, with strict limits on how much fees can increase. These rules protect you from last-minute price hikes without a valid change of circumstance[BA5] .
10% Tolerance Fees (Can Increase Up to 10% Total)
Pull out your LE and your CD and compare them line by line. Look for:
If you receive a Corrected Closing Disclosure that changes key terms (loan amount, interest rate, adds a prepayment penalty), the three-day clock resets. You don't have to close until three business days after receiving the corrected CD.
If you spot errors, speak up immediately. Contact your lender and, if necessary, your real estate attorney. Don't sign documents with errors just because you're excited to close. This is your biggest financial transaction; accuracy matters.
Not every home purchase follows the standard script. Let's cover the unique closing cost situations you might encounter.
When you refinance, you're getting a new mortgage to replace your existing one. Closing costs apply here too, though they differ from purchase closing costs.
Typical Refinance Closing Costs: 2% to 5% of the new loan amount, usually on the lower end since some purchase costs don't apply.
Some lenders offer "no-closing-cost refinances" where you don't pay anything out of pocket. How do they work?
Option 1: The lender gives you a credit that covers all closing costs in exchange for a higher interest rate (essentially the lender credit strategy we discussed earlier).
Option 2: You roll the closing costs into your new loan amount. You're still paying closing costs, just not at closing. They become part of your mortgage.
Here's the key question: how long until your monthly savings offset your closing costs?
Example: You have a $300,000 loan at 7% (monthly P&I: $1,996). You can refinance to 6.5% with $4,000 in closing costs (new monthly P&I: $1,896).
Monthly savings: $100 Break-even point: $4,000 ÷ $100 = 40 months (3.3 years)
If you plan to keep the loan for more than 40 months, refinancing saves money. If you'll sell or refinance again within 40 months, you lose money.
Buying new construction from a builder comes with unique closing cost considerations.
Builders often offer incentives to close sales:
These incentives are most generous early in a development or when builders are trying to hit quarterly sales targets.
The Trade-Off
Builders usually require you to use their preferred lender and title company to receive closing cost incentives. These preferred providers may not offer the best rates or lowest fees, so you need to calculate whether the incentive outweighs potentially higher costs.
Example: Builder offers $10,000 toward closing costs if you use their lender. Builder's lender charges 7.25% with $8,000 in fees. Another lender offers 7% with $6,000 in fees.
With builder's lender: $8,000 - $10,000 incentive = -$2,000 (net credit) With other lender: $6,000
Builder's lender looks better short-term, but that 0.25% higher rate costs you about $50 more per month. After 40 months, the other lender becomes cheaper.
These can add $1,000 to $3,000 to your standard closing costs.
Investment properties cost more to finance than primary residences.
According to Fannie Mae guidelines, financing concessions for investment properties are limited to 2% of the sales price regardless of down payment (Fannie Mae, "Interested Party Contributions," accessed November 6, 2025, https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs).
Total Impact
On a $300,000 investment property purchase, you might pay $10,000 to $16,000 in closing costs versus $8,000 to $14,000 for an owner-occupied home. The difference stems primarily from higher origination fees and insurance costs.
Buying with cash dramatically reduces your closing costs because you eliminate all lender-related fees.
Typical Cash Buyer Closing Costs: 1% to 2% of purchase price
Example
On a $400,000 cash purchase:
Compare this to $12,000 to $20,000 for a financed purchase, and the cash advantage is clear from a closing cost perspective.
I've seen these mistakes cost buyers hundreds to thousands of dollars. Learn from others' errors.
Mistake 1: Not Shopping for Services
Many buyers use whatever providers their lender recommends without getting competing quotes. This is especially costly for title insurance, which can vary by $500 to $1,500 for identical coverage.
Solution: Get at least three quotes for every shop-pable service. It takes a few phone calls but can save you over $1,000.
Mistake 2: Skipping the Home Inspection to Save Money
Some buyers waive the home inspection (typically $300 to $500) to make their offer more competitive or save cash.
Why This Hurts: That $400 inspection might reveal $15,000 in needed repairs, giving you leverage to negotiate a price reduction or seller concessions. Even if it doesn't reveal major issues, the peace of mind is worth $400 on a $300,000 purchase.
Solution: Always get a home inspection unless you're buying new construction with a builder warranty. If you're cash-strapped, this is one of the last costs you should cut.
Mistake 3: Accepting the First Loan Estimate Without Shopping
The first lender you talk to might not offer the best terms. Lenders know many borrowers don't shop around and may not offer their most competitive pricing upfront.
Solution: Get Loan Estimates from at least three lenders. The time investment (a few hours) can save you thousands in closing costs and tens of thousands in interest over the loan's life.
Mistake 4: Not Reading Documents Carefully
Many buyers skim their Loan Estimate and Closing Disclosure or don't read them at all. Errors happen, and sometimes they're not in your favor.
Solution: Set aside dedicated time to review every line of your LE and CD. Compare the two documents line by line. Question anything you don't understand. You're not being difficult; you're being smart.
Mistake 5: Missing Deadlines
Missing the deadline to shop for services, get a home inspection, or review your Closing Disclosure can cost you your earnest money deposit or force you to accept unfavorable terms.
Solution: Create a timeline of all important dates when you go under contract. Set phone reminders for three days before each deadline. Your real estate agent should help with this, but ultimately you're responsible.
Mistake 6: Not Bringing Certified Funds
Closings require certified funds (cashier's check or wire transfer). Personal checks above a certain amount (often $1,000) aren't accepted.
Solution: Coordinate with your settlement agent at least three business days before closing to confirm the exact amount you need and the accepted payment methods. Arrange for the wire transfer or cashier's check a day before closing.
Mistake 7: Not Asking Questions
Buyers often feel intimidated by the closing process and don't ask questions about fees they don't understand.
Solution: Every professional at your closing—your lender, real estate agent, attorney, and settlement agent—works for you. Ask about anything that confuses you. A good question: "Can you explain this $X fee and why it's necessary?" If the answer doesn't satisfy you, push back or ask to speak with a supervisor.
Mistake 8: Assuming All Fees Are Non-Negotiable
Many buyers assume closing costs are set in stone. While some fees truly are fixed (government fees), many others can be negotiated.
Solution: Ask which fees are negotiable. Show competing quotes. Be willing to walk away if a lender won't budge on unreasonable fees. Your leverage is strongest before you commit.
Mistake 9: Forgetting About Moving Costs and Immediate Repairs
Buyers sometimes drain their savings paying for down payment and closing costs, leaving nothing for moving expenses, immediate repairs, or furnishing their new home.
Solution: Budget for at least $2,000 to $5,000 beyond your down payment and closing costs for moving, immediate repairs, and getting settled. If you can't do this, consider asking for seller concessions to preserve more cash.
Mistake 10: Closing at the Wrong Time of Month
As we discussed earlier, closing early in the month means higher prepaid interest costs.
Solution: Unless you need to close quickly for other reasons, schedule your closing for the last week of the month. This saves you hundreds in prepaid interest and gives you a longer grace period before your first mortgage payment.
Location dramatically affects what you'll pay. Let me explain how geography impacts your bottom line.
Closing costs vary by state, county, and even city because:
Attorney States (Higher Costs): States requiring attorneys at closing typically add $800 to $1,500 to closing costs:
High Title Insurance States: States with unregulated title insurance rates tend to have higher costs:
These states immediately save you thousands compared to high-transfer-tax states.
Title-Regulated States (More Predictable Costs): States that regulate title insurance rates have more consistency and sometimes lower costs:
Here in Louisville, Kentucky, we're fortunate to have relatively moderate closing costs compared to high-cost markets. Transfer taxes are manageable, title insurance is competitive, and local recording fees are reasonable. That said, I always remind people that even within Kentucky, costs vary between urban and rural areas.
The lesson: never assume your friend's closing costs in another state will match yours. Get local quotes and use the calculator with your specific location to estimate accurately.
To give you a reference point, here are approximate closing cost ranges by loan amount for a typical transaction in a moderate-cost state:
Your actual costs will fall somewhere in this range depending on your specific location, loan type, and negotiated terms.
Let's talk about why closing costs have increased so dramatically and what it means for you as a home buyer.
According to the Consumer Financial Protection Bureau's 2024 analysis, median closing costs increased 36% from 2021 to 2023. That's a staggering jump in just two years, significantly outpacing both inflation and home price appreciation (Consumer Financial Protection Bureau, "CFPB Launches Inquiry into Junk Fees in Mortgage Closing Costs," accessed November 6, 2025).
What's Driving the Increases?
The Federal Register documented several specific cost drivers:
Rising closing costs disproportionately affect first-time home buyers and those with smaller mortgages. Because many closing costs are fixed (appraisals, credit reports, recording fees), they represent a larger percentage of smaller loans.
If you're taking out a $150,000 loan, that $500 appraisal represents 0.33% of your loan amount. On a $600,000 loan, the same appraisal is just 0.08%. This means entry-level home buyers face higher effective closing cost rates than luxury home buyers.
The CFPB has launched a formal inquiry into what it calls "junk fees" affecting mortgage closing costs. According to former CFPB Director Rohit Chopra[BA6] , "Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs. The CFPB is looking for ways to reduce anticompetitive fees that harm both home buyers and lenders" (Consumer Financial Protection Bureau, "CFPB Launches Inquiry into Junk Fees in Mortgage Closing Costs," accessed November 6, 2025).
Regulatory attention could lead to:
While I can't predict the future, increased scrutiny of closing costs may result in:
Regardless of potential future regulations, your best protection is education (which is why you're reading this guide) and vigilance. Understand what you should be paying, shop aggressively for services, and don't accept inflated fees without questioning them.
Now let's put everything together into a comprehensive budget you can actually use.
To buy a home, you need more than just your down payment. Here's the complete picture:
Down Payment
Let's work through a real example for a $350,000 home:
Purchase Price: $350,000
Down Payment (5%): $17,500
Loan Amount: $332,500
Estimated Closing Costs (3%): $9,975
Earnest Money (already deposited): $3,500
Moving Expenses: $2,000
Immediate Repairs/Furniture: $3,000
Emergency Fund (3 months expenses): $12,000
Total Cash Needed Before Buying: $44,475
Due at Closing: $27,475 ($17,500 + $9,975)
Here's what people miss: you need $44,475 in accessible cash to buy this home safely, even though only $27,475 is due at closing. The other $17,000 covers your moving costs, immediate needs, and maintains your financial security.
If you're working toward a home purchase, here's a realistic savings strategy:
Use the calculator at the top of this page to estimate your closing costs based on your target purchase price. Add your down payment. That's your total savings goal.
Decide when you want to buy. Count the months between now and then.
Example: You need $30,000 total (down payment + closing costs) and want to buy in 18 months. $30,000 ÷ 18 months = $1,667 per month savings needed
Set up automatic transfers from your checking to a high-yield savings account on the day you get paid. Make it automatic so you're not tempted to spend the money.
Look for ways to accelerate your savings:
Don't invest your home buying funds in stocks or anything with risk. Keep them in:
You need this money to be available when you're ready to buy, so liquidity and safety trump returns.
Use this checklist as you gather quotes:
□ Loan origination fee: $______
□ Appraisal fee: $______
□ Credit report fee: $______
□ Title search: $______
□ Lender's title insurance: $______
□ Owner's title insurance: $______
□ Settlement fee: $______
□ Attorney fee: $______
□ Recording fees: $______
□ Transfer taxes: $______
□ Home inspection: $______
□ Homeowners insurance (1 year): $______
□ Prepaid interest: $______
□ Property tax escrow: $______
□ HOA fees: $______
TOTAL: $______
This helps you track actual quotes versus estimates as you shop for services.
Your relationship with your lender significantly affects your closing cost experience. Here's how to make it productive.
Don't be shy about asking detailed questions. Here are the most important ones:
This confuses many buyers. Your interest rate is the cost of borrowing money. Your APR (Annual Percentage Rate) includes the interest rate plus certain closing costs spread over the loan term.
Example:
Your APR might be 7.18%, reflecting both the 7% rate and the $6,000 in costs amortized over 30 years.
APR helps you compare loans with different fee structures. A loan with a 7% rate and $10,000 in fees has a higher APR than a loan with a 7% rate and $5,000 in fees, even though the interest rate is the same.
Always compare APRs, not just interest rates, when shopping for mortgages.
Stay in close contact with your lender from application through closing. Respond quickly to requests for documents, ask questions immediately when something's unclear, and keep your employment and financial situation stable (don't change jobs, open new credit cards, or make large purchases before closing).
At AmeriSave, our digital platform provides real-time updates throughout your loan process, and our team is available to answer questions about your Loan Estimate and Closing Disclosure. We believe transparency in closing costs builds trust and leads to better borrower experiences.
The mortgage process can feel overwhelming, especially for first-time buyers. Having a lender who explains everything clearly, responds quickly, and uses technology to keep you informed makes all the difference. When you understand what's happening at each stage and what you'll pay, you can make confident decisions and avoid unwanted surprises.
Let me put all this together for you.
Closing costs are real, big, and unavoidable, but they don't have to be secret or higher than they need to be. If you buy a house, you'll pay 2% to 5% of the loan amount in closing costs. For a $300,000 loan, that could be $6,000 to $15,000.
Title insurance, lender origination fees, prepaid expenses, and government fees are the biggest parts. You can save money on many of these costs by negotiating with the seller, getting lender credits, shopping around, and timing your purchases just right.
The type of loan you get is important. Conventional loans let you choose how much you want to pay each month, but they need PMI if you put down less than 20%. FHA loans have high limits on seller concessions, but they charge mortgage insurance up front. VA loans don't have PMI and limit lender fees, making them a great deal for veterans who qualify. USDA loans cover 100% of the cost, but they do charge guarantee fees.
The Loan Estimate and the Closing Disclosure are the two most important papers you'll need when buying a home. The Loan Estimate shows you how much the loan will cost within three days of applying, and the Closing Disclosure shows you how much the loan will cost at least three days before closing. Check these papers against each other and ask about any differences.
You can lower your closing costs in six main ways: by negotiating seller concessions, accepting lender credits, aggressively shopping for services, timing your closing late in the month, looking for down payment assistance programs, and asking lenders to lower their fees.
Before you start looking for a house, use the Mortgage Closing Cost Calculator at the top of this page to get an idea of how much it will cost. Try out different situations with different loan types, down payments, and purchase prices. This helps you make a good budget and avoid the shock of closing costs that many buyers get.
Most importantly, keep in mind that closing costs are only one part of the total cost of buying a home. You need money for your down payment, closing costs, moving costs, repairs that need to be done right away, and an emergency fund. If you plan ahead, you can make sure you have all of these funds ready before you make an offer.
Buying a house is probably the biggest financial deal you'll ever make. When you know what closing costs are, you can take charge of the process, get better terms, and make sure you don't pay too much for services. Take the time to learn, ask questions, shop around, and don't accept high fees without pushing back.
You can do this. You can confidently handle closing costs and save money along the way with the information in this guide and the calculator above.
Well done on getting through this long guide. You now know more about the costs of closing a mortgage than most home buyers do even after they have bought a home. That knowledge is power, and it helps you save money and avoid stress.
Keep in mind the most important things we've talked about. According to CFPB data, closing costs usually range from 2% to 5% of the loan amount, with the median being $6,000. However, costs have gone up by 36% from 2021 to 2023. Title insurance, lender fees, and prepaid costs are the biggest parts. You can save money by getting seller concessions, lender credits, shopping smartly, timing your closing just right, and negotiating fees. Pick the right loan for your needs because different types of loans have different ways of charging you and limits on how much the seller can give you.
Your Loan Estimate and Closing Disclosure are legally binding papers that keep you safe from unfair fee hikes. Read them carefully. You can control your final costs because many closing costs can be negotiated or shopped around for. Before you start looking for a house, use the calculator at the top of this page to make sure you have a good budget.
I want you to feel empowered, not overwhelmed, more than anything else. Yes, closing costs are high, but if you plan ahead, learn about them, and speak up for yourself throughout the process, they are manageable. You're making one of the most important financial choices of your life, so you should know exactly where each dollar is going.
We at AmeriSave think that borrowers who know more make better choices and have better experiences when buying a home. Our digital mortgage platform is open and honest at every step. You can get real-time updates, see how much each part costs, and talk to a team member if you have any questions. We are here to help you feel sure about how to get through this.
Are you ready to begin? To figure out how much your mortgage will cost, use the Mortgage Closing Cost Calculator above. Then, look into your mortgage options with AmeriSave. Get your personalized rate quote today and start the process of buying a home with a clear understanding of all your costs.
You've put in the effort to learn. Now that you know what to do, let's get you into your new home.
Consumer Financial Protection Bureau. "CFPB Launches Inquiry into Junk Fees in Mortgage Closing Costs." Published May 30, 2024. Accessed November 6, 2025. https://www.consumerfinance.gov/about-us/newsroom/cfpb-launches-inquiry-into-junk-fees-in-mortgage-closing-costs/
Federal Register. "Request for Information Regarding Fees Imposed in Residential Mortgage Transactions." Published June 6, 2024. Accessed November 6, 2025. https://www.federalregister.gov/documents/2024/06/06/2024-12443/request-for-information-regarding-fees-imposed-in-residential-mortgage-transactions
Urban Institute. "What Components Make Up Closing Costs?" Published April 2, 2025. Accessed November 6, 2025. https://www.urban.org/urban-wire/what-components-make-closing-costs
Fannie Mae. "Interested Party Contributions (IPCs)." Fannie Mae Selling Guide. Accessed November 6, 2025. https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs
Fannie Mae. "Selling Notice: Real Estate Commissions and Interested Party Contributions." Published April 2024. Accessed November 6, 2025. https://singlefamily.fanniemae.com/news-events/selling-notice-real-estate-commissions-and-interested-party-contributions
Consumer Financial Protection Bureau. "TRID Assessment and Integrated Mortgage Disclosures Rule." Published October 2020. Accessed November 6, 2025. https://www.consumerfinance.gov
U.S. Department of Housing and Urban Development. "HUD Handbook 4000.1: FHA Single Family Housing Policy Handbook." Accessed November 6, 2025. https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1
Federal Housing Finance Agency. "Loan-Level Price Adjustments (LLPAs)." Published 2023. Accessed November 6, 2025. https://www.fhfa.gov
Mortgage Bankers Association. "Mortgage Originations and Market Trends." Published 2025. Accessed November 6, 2025. https://www.mba.org
National Association of Realtors. "Real Estate Market Statistics and Settlement Practices." Published 2025. Accessed November 6, 2025. https://www.nar.realtor
U.S. Department of Veterans Affairs. "VA Lender's Handbook: VA Pamphlet 26-7." Accessed November 6, 2025. https://www.benefits.va.gov/homeloans/
USDA Rural Development. "Single Family Housing Guaranteed Loan Program." Accessed November 6, 2025. https://www.rd.usda.gov/programs-services/single-family-housing-programs
Yes, you can negotiate many closing costs, but not all of them. Let me explain what you can and cannot negotiate. If you have Loan Estimates from other lenders that show lower fees, you may be able to negotiate lender fees like origination fees. If you ask, some lenders will lower their origination fee by 0.25% to 0.5%. This is especially true if you have good credit and a steady income. You might also be able to negotiate or even get rid of processing fees, application fees, and rate lock fees.
You can shop for third-party services and choose the one with the lowest price, which means you can negotiate. You can negotiate because different providers charge different amounts for title insurance, closing costs, and attorney fees. Tell your favorite provider about other quotes and ask if they can match or beat those prices. You can also negotiate the costs of home inspections and surveys if you're willing to look around.
But some costs can't be changed at all. The law sets government fees like recording fees and transfer taxes, and they can't be lowered. Your lender and the credit bureaus agree on the fees for credit reports, so there is no room for negotiation. The appraiser decides how much to charge based on the type of property and where it is located. However, if your lender lets you choose, you may be able to find a cheaper appraiser. You will have to pay for things like homeowners insurance, property taxes, and prepaid interest, so there is no room for negotiation. However, you can look for better rates on insurance.
Competition is the best way to get what you want when you negotiate. Get loan estimates from at least three lenders and use those numbers to get better terms. When you ask for a lower fee, be direct but polite. You could say, "Your rate and service are great, but Lender B is charging $500 less in origination fees. Can you match that to get my business?" Lenders want your loan and will often negotiate to get it, especially in competitive markets.
This is one of the most common things that people get wrong, so let me be clear. Your down payment is the money you put down to buy the house, and it becomes your equity right away. If you put down 10% on a $300,000 home, that means you pay $30,000 toward the price of the home and borrow the other $270,000. You own that $30,000 in equity in the property. If you sold the house the next day for $300,000, you would get your $30,000 back after paying off the loan.
Closing costs, on the other hand, are fees for services needed to finish buying a home and getting your loan. These costs include appraisals, title insurance, lender fees, attorney fees, recording fees, and many others. Closing costs are just the cost of doing the deal; they don't add to your equity. You won't get the $10,000 back when you sell if you pay that much in closing costs. That money went to pay for services.
Here's a real-life example. You are buying a house for $350,000. You need to put down 5%, which is $17,500. Your closing costs are likely to be around $10,500. You need a total of $28,000 to close, which includes the down payment and closing costs. But only $17,500 of that money makes you a bigger owner of the home. The other $10,500 went to pay for the services needed to finish the deal.
One more important difference is that the amount of your down payment affects the terms of your loan. If you put down 20% or more on a conventional loan, you won't have to pay PMI. PMI is needed if you put down less than 20%. The percentage of your down payment also affects the limits on your interest rate and seller concessions. Closing costs, on the other hand, don't change any of your loan terms. They are just an extra cost you have to pay no matter how much you put down.
People often add up their down payment and closing costs when figuring out how much cash they need because both of these costs must be paid at closing. But knowing the difference helps you decide where to put your savings in a smart way.
Yes, for sure! This is one of the best ways to lower your closing costs. Seller concessions, also known as seller-paid closing costs, are the amounts that the seller agrees to pay toward your closing costs as part of the purchase agreement. But you need to know about some important limits and strategic issues.
First, the maximum seller concession limits for each type of loan depend on how much you put down. When you put down less than 10%, sellers can contribute up to 3% of the purchase price. When you put down between 10% and 25%, they can contribute up to 6%, and when you put down more than 25%, they can contribute up to 9%. FHA loans let you borrow up to 6% of the home's value, no matter how much you put down. USDA loans let you borrow up to 6%, while VA loans let you borrow up to 4%. These limits are set in stone; you can't go over them even if the seller wants to give you more.
Second, the seller's contributions can't be more than your actual closing costs. You can only use $8,000 of the seller's $10,000 contribution if your closing costs are $8,000. You can't use the extra money for your down payment or get it back in cash. It just lowers the amount of money the seller makes from the sale.
So, how do you get sellers to really pay your closing costs? This is something you talk about when you make your offer to buy. The most common way to do this is to offer the seller's asking price (or close to it) in exchange for the seller paying the closing costs. You could, for instance, offer $350,000 and ask the seller to give you $10,000. The seller gets $340,000, which is the same as if you had offered $340,000 without any concessions. But from your point of view, you've kept $10,000 of your money, even though your loan amount goes up by $10,000.
When the market favors buyers, when their home has been on the market for a long time, when they want to sell quickly, or when the home inspection shows problems, sellers are more likely to agree to pay closing costs. Instead of having the seller make repairs, you can also ask for seller concessions after the inspection. Instead of doing repairs themselves, many sellers would rather give you a credit for closing costs.
One thing to think about is that seller concessions keep your money now, but they also raise the amount of your loan, which means your monthly payment will go up. Before you go through with this plan, make sure you can afford the higher payment. And don't forget that seller concessions are only one way to negotiate. Depending on your finances, a lower purchase price may be better for you than closing costs paid by the seller.
It's hard to answer this question without knowing more about your situation, but I can tell you what kinds of things are usually tax-deductible and what kinds of things aren't.
The short answer is that you can't deduct most closing costs from your taxes. Some costs, on the other hand, may help you save money on taxes right away or by increasing the cost basis of your home, which lowers your capital gains when you sell it.
The closing costs that may be immediately deductible include discount points you paid to lower your interest rate, which can often be deducted in the year you paid them if you meet certain IRS requirements. You might be able to deduct the property taxes you paid at closing for the seller's part of the year. You can deduct prepaid interest from the day of closing until the end of the month. If you itemize your deductions, you can deduct the interest you pay on your mortgage after closing, but this isn't really a closing cost.
Title insurance, attorney fees, recording fees, surveys, transfer taxes, owner's title insurance, and most lender fees are all closing costs that you can't deduct but that might raise your cost basis. These costs raise your basis in the property, which could lower your taxable capital gain when you sell your home. If you bought your home for $300,000 and paid $10,000 in closing costs that raised its value, your tax basis is $310,000. Your profit is $90,000 instead of $100,000 if you sell for $400,000.
Appraisal fees, credit report fees, home inspection fees, and other service charges are examples of closing costs that don't give you any tax benefits. These are just costs that don't affect your taxes.
It can be hard to figure out when you can deduct things, especially points and mortgage interest. Under current tax law, mortgage interest is only deductible in some situations. Also, whether you benefit from deducting anything depends on whether you take the standard deduction or itemize your deductions. A lot of homeowners find that their total itemized deductions, even with mortgage interest and property taxes, don't go above the standard deduction, which makes the point moot.
I suggest that you keep all of your closing documents, especially your Closing Disclosure, and give them to your tax preparer. A qualified tax professional can help you figure out which closing costs will help you with your taxes. Tax laws change, and your situation is different from everyone else's. Getting professional help will help you get the most out of your deductions without breaking IRS rules.
You really don't want this to happen, but let me explain what happens and how to stop it. The closing can't happen if you don't have enough money when you get there. The deal will have to wait until you can get the money you need, and this delay could have serious effects.
First, you might lose your earnest money deposit. Your purchase agreement probably has conditions and deadlines. If you don't close on time because you don't have enough money, you might be breaking the contract. The seller could end the deal and keep your earnest money, which is usually between 1% and 3% of the price you paid. That could mean losing $3,000 to $9,000 on a $300,000 home.
Second, the rate locks run out. If your closing takes longer than your rate lock period, your locked interest rate will end and you'll have to relock, which could be at a higher rate if rates have gone up. You might have to pay extra to relock, and it might make your monthly payment higher for the life of your loan.
Third, other people involved in the deal may have legal options. If you can't close on the deal, the seller may sue you for more than just keeping your earnest money. For example, they may have already moved, be paying two mortgages, or lost a later purchase.
So, how do you stop this from happening? Use the calculator at the top of this page to figure out how much your closing costs will be early in your home search. Then, when you get your Loan Estimate, check the actual amount. Put in an extra 10% to 15% because estimates can change. Check your Closing Disclosure carefully and call your settlement agent to confirm the final cash to close amount three to five days before closing.
If you find out before closing day that you don't have enough money, you have a few options. Even at this late stage, you can still ask the seller for concessions or a credit for closing costs. Some sellers will agree to skip the trouble of starting the sales process over again. You can ask family members for a gift, making sure to properly document it as required by your lender. You might be able to talk to your lender about lowering some fees or giving you lender credits in exchange for a higher rate. You might be able to use credit cards to pay for some things, but most lenders don't accept credit cards for down payments or most closing costs.
You should never try to borrow money in a way that changes your debt-to-income ratio, get a personal loan right before closing, or try to hide money problems from your lender. These things could make your loan approval go away, which is worse than just a temporary delay.
In short, make detailed plans, double-check your numbers early, and keep some cash on hand. You shouldn't buy yet if you're running low on money. Build up your savings first, and then buy when you can easily pay the closing costs and have some extra money set aside for unexpected costs.
Closing cost calculators, like the one at the top of this page, are planning tools that give you rough estimates based on average costs and general assumptions. They are great for planning ahead, but you shouldn't think of them as exact estimates of your closing costs.
This is why calculators are useful. They give you a good idea of how much money you need to set aside before you even apply for a loan. They let you see how different loan amounts, down payments, and types of loans affect costs by letting you compare different scenarios. They help you figure out what closing costs are and how much they are. They stop the sticker shock that many buyers feel when they first see their Loan Estimate.
But calculators have some big problems. They use average costs that may not reflect your specific location's fees. Transfer taxes, title insurance, attorney fees, and recording fees are all very different from one state, county, or even city to the next. Calculators usually can't get these local differences exactly right. They don't know how much your lender charges in fees. Some lenders have higher origination fees but lower processing fees. Some people charge fees in a different way. A Loan Estimate from your lender is the only way to find out what fees that lender charges.
Negotiated discounts or concessions can't be added to calculators. If you've worked out with the seller to pay for closing costs, get lender credits, or lower fees, these won't show up in a generic calculator estimate. They might not include all of the extra costs that you could choose. The calculator's estimate may not include things like extended warranties, owner's title insurance, or extra inspections. Most calculators figure out how much you owe in prepaid items by looking at the average tax rates and insurance costs. However, your actual property taxes and insurance premiums may be higher or lower depending on the type of property you have and the coverage you choose.
So, how close should you expect a calculator to be? For planning purposes, a good calculator should get you within 15% to 25% of your real closing costs. If the calculator says that closing costs will be $9,000 on a $300,000 loan, your real costs will probably be between $7,500 and $10,500. This is good enough for early planning but not for final budgeting.
When do you get the right numbers for closing costs? Your lender has to give you a Loan Estimate within three business days of your mortgage application. This will show you your estimated costs with a lot more accuracy. Most of the fees on the Loan Estimate can't go up by more than 10%, and some can't go up at all. This makes it a good planning tool. Three business days before the closing, you get a Closing Disclosure that shows you the real closing costs. This is the final document you'll need to get your certified funds ready for closing.
I recommend that you use the calculator early on in your home search to get an idea of the general costs and set savings goals. Get pre-approved and get an official Loan Estimate from at least three lenders once you're ready to buy. Use those Loan Estimates to plan your budget and compare lenders. Your Closing Disclosure is the last word on closing costs when you're under contract.
One of the most talked-about closing costs is owner's title insurance. My answer is a loud yes: you should buy it, even though it's not required. Let me explain why this small cost gives you a lot of protection.
First, you should know what title insurance protects you from. If someone questions your ownership of the property after you buy it, owner's title insurance will protect you from losing money. These problems could be caused by mistakes in public records, liens or judgments against the property that aren't known, forged documents in the chain of title, heirs who aren't known claiming ownership, mistakes in the title search, fraud or forgery in past transactions, or mistakes in the legal description of the property.
The main difference between owner's title insurance and lender's title insurance is who is covered. You must buy lender's title insurance to protect the lender if problems with the title put their security interest in your property at risk. If there is a problem with the title, the lender's title insurance pays the lender, but you don't get anything. Owner's title insurance protects you, the person who owns the home. Your owner's policy will pay you back if a covered title defect costs you money.
This is a real-life example of how owner's title insurance works. You pay $350,000 for a house. Two years later, someone comes forward with proof that their mother was the heir to the previous owner and never agreed to the sale. They sue you, saying they own part of your property. Your title company will defend you in court and pay any settlement or judgment, up to the limits of your policy, if you have owner's title insurance. You would have to pay all of your own legal fees and any settlement if you didn't have owner's title insurance. This could cost you tens of thousands of dollars or even your home.
Owner's title insurance costs between $500 and $1,500, depending on where you live and how much your property is worth. You only have to pay this premium once, at closing. This policy will protect you as long as you or your heirs own the property. Think about how much money you could lose if you lost your home or had to pay $50,000 in legal fees to keep it.
Some people think that title searches make owner's title insurance unnecessary because they think that if the title company does a thorough search, there shouldn't be any problems. But the truth is that title searches are only as good as the public records, and sometimes public records have mistakes in them. It may not be possible to find forged signatures. There may not be any records of undisclosed heirs. It might not be easy to see mistakes in legal descriptions. Title insurance exists because even the most thorough title searches can't find every possible problem.
In some states, it's common for the seller to pay for owner's title insurance. You don't have to worry about this if you're buying in one of these states because you get owner's title insurance for free. Even in states where buyers usually pay, the protection is worth the money. You can protect yourself against title defects for less than 0.5% of the price of your home. That's a fair price for a lot of peace of mind.
If you're paying cash for a property you plan to flip quickly and never live in, and you're okay with the risk, that's the only time you might be able to skip owner's title insurance. Buy owner's title insurance for your main home or any property you plan to keep for a long time. It's one of the best ways to protect your money.
It depends on your loan type and your situation if you can roll closing costs into your mortgage. Even if you can, it might not be the best financial choice. Let me explain when it's possible and when it makes sense.
In the traditional sense, rolling closing costs into a purchase mortgage is usually not allowed. You can't borrow more than the price of the house to pay for closing costs. You can get the same effect, though, by asking the seller to pay your closing costs and raising the purchase price by that amount. You could buy a home for $309,000 instead of $300,000 and have the seller pay the closing costs, which would be $9,000. Your loan amount goes up by $9,000, which means that the costs are "rolled" into your mortgage, even though the seller technically paid them.
You can really add closing costs to your new loan amount when you refinance. This happens a lot and is pretty simple. You can borrow $254,000 if you're refinancing a $250,000 mortgage and the closing costs are $4,000. You don't have to pay anything at closing, and the extra $4,000 covers the closing costs. This is not the same as a no-closing-cost refinance, where the lender gives you a credit to cover costs in exchange for a higher interest rate.
Accepting lender credits is another way to avoid paying closing costs up front. If you agree to pay a little more interest, your lender will pay some or all of your closing costs. You might agree to 7.25% with only $4,000 in closing costs instead of 7% with $9,000 in closing costs (the lender pays $5,000). This doesn't technically add costs to your mortgage, but it does lower the amount of cash you need to bring to closing.
Should you include closing costs in your mortgage when you can? It's clear what the benefit is: you keep cash at closing, which means you can stay flexible for emergencies, moving costs, home repairs, or other needs. This is great for buyers who can afford the monthly payment but don't have a lot of cash right away.
But there are some big problems with it. You will have to pay interest on your closing costs for the whole time you have the loan. Over 30 years at 7%, those $9,000 in closing costs turn into $22,000 or more in interest payments. Your monthly payment goes up, even if it's just a little bit. If the difference is $9,000 and the interest rate is 7%, your payment goes up by about $60 a month. Rolling in closing costs will not help you reach your goal of lowering your monthly payment. If rolling in costs pushes you over certain loan-to-value limits, you may need mortgage insurance for a longer time or at a higher premium.
Here is a worked-out calculation that shows the real cost. You're refinancing $250,000 and paying $4,000 in closing costs.
Option A: Pay closing costs at closing. The loan amount is $250,000, and the monthly payment and interest rate is 6.75%. Over 30 years, the total interest will be $333,560.
Option B: Include closing costs in the loan. Loan amount: $254,000 Monthly P&I at 6.75%: $1,647 Total interest over 30 years: $339,020
You save $4,000 up front by rolling in closing costs, but you pay $26 more each month and $5,460 more in total interest. After 154 months (12.8 years), you've paid back the $4,000 you "saved" by paying more in interest. You will lose money if you keep the loan after that point.
If you really need to keep cash on hand for emergencies or other immediate needs, or if you don't plan to keep the loan for a long time and expect to refinance or sell before you reach the break-even point, then you should only roll closing costs into your mortgage. If you have the money and plan to keep the loan for a long time, pay the closing costs up front to lower the total cost of owning a home.
This can be annoying when it happens. Let me explain the real reasons why costs might go up and the protections you have against unfair increases. The TRID rule says that lenders can only raise certain closing costs by certain amounts between your Loan Estimate and Closing Disclosure.
Some fees can go up by as much as 10% in total. These are called "10% tolerance fees." These are fees for recording, fees for third-party services where you could shop but had to choose a provider from the lender's list, and title services where you used the lender's recommended provider. The total amount of all these fees can go up by 10% from your Loan Estimate to your Closing Disclosure. Your CD can show up to $1,100 for these services if your LE showed $1,000 total. You must get back any money over $1,100.
Some fees don't have a set limit and can go up by any amount. These include services where you picked your own provider that wasn't on the lender's list, prepaid interest if your closing date changed, property insurance if your coverage amount changed, initial escrow deposits if tax or insurance rates went up, fees paid to sellers or third parties that had nothing to do with the lender, and transfer taxes set by the government.
So, what are some real reasons why your closing costs might go up? Your closing date changed, which changed the interest you had already paid. If you close later in the month, you will pay less interest in advance. If you close earlier, you will pay more interest in advance. The rates for property taxes or homeowners insurance went up between your Loan Estimate and Closing Disclosure. These are real cost increases that you have to pay. The home's appraised value was higher than expected, which raised transfer taxes in places where they are based on property value. Or the appraised value come in lower, which increased the loan-to-value (LTV), and caused the disclosed to go up. Title search found liens or judgments that weren't expected and need to be cleared, which raises the costs of the title.
The Loan Estimate said that you would choose service providers who cost more than what the lender thought. If the LE thought the appraisal would cost $600 and you paid $800, that extra money is okay. The home inspection found problems that needed more inspections (for pests, structural engineers, etc.) that weren't expected at first. Some fees that are based on a percentage change when the loan amount, interest rate, or type of loan changes. The local government changed the fees for recording or transferring between your Loan Estimate and closing.
What should you do if prices go up? First, go through your Closing Disclosure and Loan Estimate line by line and compare them. Figure out if the zero-tolerance fees went up at all (they shouldn't have). Add up all the 10% tolerance fees from both documents and make sure that the total increase is no more than 10%. If your lender doesn't explain an increase that seems unreasonable, ask them about it.
If you think the fees went up for no good reason, it’s probably due to a change of circumstances. If the explanation isn't good enough, you can put off closing until the problem is fixed. Keep in mind that you have the right to get your Closing Disclosure at least three business days before closing so that you can look it over and fix any problems before you sign anything.
The bottom line is that some price hikes are real and can't be avoided, but lenders can't raise most fees by more than a certain amount. Know your rights, read your papers carefully, and don't be afraid to ask questions about price increases that don't seem right.
Closing costs are different for refinancing and buying a home because they are two different types of transactions. Knowing these differences will help you make a good budget whether you're buying your first home or refinancing your current mortgage.
When you buy a home or refinance, you'll have to pay origination fees (which may be lower for refinances), appraisal fees (which are needed to find out how much the property is worth), credit report fees, title insurance (specifically lender's title insurance), title search and examination fees, attorney or settlement fees (if you need them), recording fees (to record the new mortgage), prepaid interest (from closing to month-end), and possibly discount points if you want to lower your rate.
But some costs only apply to purchases and not refinances. When someone buys a home, the seller pays the real estate agent's commission. But when someone refinances, there is no sale, so there is no commission. Most of the time, people get home inspections before they buy a house to check on its condition. But when they refinance, they don't usually need to get one because they already own the house and know it well. Pest inspections are often required for purchases but are not often needed for refinances. When you change ownership, you have to pay HOA transfer fees. But if you're just refinancing your mortgage, you don't have to pay them. Surveys are usually needed for purchases, but if you have a recent survey, they might not be needed for refinances. When you buy a home, you usually get owner's title insurance. This insurance stays in effect even if you refinance, so you don't need to get a new policy.
There are some costs that only come up when you refinance. If your current mortgage has a prepayment penalty clause, you may have to pay extra to refinance. If you have a second mortgage or a HELOC that needs to be subordinated to your new first mortgage, you may have to pay a subordination fee. Your current lender may charge you payoff fees to pay off your mortgage and free it up.
When you refinance, you're opening new escrow accounts with your new lender. This is an important thing to remember about escrows. Your old lender will, however, give you back your current escrow balance, usually within 30 days of paying off your old loan. You will need the money up front to close, but this refund will help pay for some of your refinance closing costs.
If you do a no-cash-out refinance, you can add closing costs to your new loan amount. This is common and lowers or gets rid of your closing costs. You can't do this when you buy something; you have to pay closing costs with your own money or through seller concessions.
The main point is that the closing costs for refinancing are usually 30% to 50% lower than the closing costs for buying a home because you don't have to pay for a lot of things. You should still expect to pay between $3,000 and $6,000 in closing costs on a typical refinance, though. This depends on how much you owe and where you live. And keep in mind that just because refinancing costs less doesn't mean it's always a good deal. To find out if refinancing makes sense for you financially, you need to figure out your break-even point by comparing your monthly savings to your upfront costs.
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