Closing costs
The fees and prepaid expenses due when a home purchase or refinance is finalized, separate from the down payment.
What it means
Closing costs include lender fees such as origination and underwriting, third-party charges such as appraisal, title insurance and recording fees, and prepaid items like initial escrow deposits and daily interest. Totals often fall around 2% to 5% of the loan amount, but vary widely by state, lender and loan size.
Lenders must provide a loan estimate soon after an application and a closing disclosure at least three business days before closing, making it possible to compare charges. Some costs can be negotiated, paid by the seller as a concession or rolled into the loan, usually through a higher rate or larger balance.
Example
For example, a buyer putting 20% down on a $375,000 home pays $75,000 and borrows $300,000. If closing costs are 3% of the loan, or $9,000, the buyer needs about $84,000 in cash at closing.
How it’s used
- Budgeting cash needed to buy a home
- Comparing loan estimates from several lenders
- Judging whether a refinance is worthwhile
Good to know
- Compare loan estimates line by line; shopping for third-party services where allowed can trim costs.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.