Closing costs when buying a home are the fees and charges you pay to finalize your mortgage and transfer ownership, on top of your down payment. They often surprise first-time buyers because they arrive as a long list of line items from the lender, the title company, local governments and insurers. The Consumer Financial Protection Bureau (CFPB) notes that closing costs can total thousands of dollars and that estimates vary widely from one lender to another.
The good news is that federal disclosure rules give you two standardized documents to track these costs, and several of the services can be shopped for. This guide breaks down what is typically included, when you will see each figure, which costs you can influence, and how to estimate the cash you will need to bring to the closing table.
What Closing Costs Typically Include
Closing costs are not a single fee. The CFPB’s home loan toolkit groups them into a few broad buckets. Exact items vary by lender, loan type and location.
Loan costs
- Origination charges: The lender’s fees for making the loan, which may include application, underwriting, processing or rate-lock fees. Because lenders itemize differently, compare the total rather than individual lines.
- Discount points: Optional upfront payments to lower your interest rate. One point equals 1% of the loan amount.
- Services the lender requires and chooses: Items such as the appraisal and credit report. Government-program fees, such as an FHA upfront premium or a VA funding fee, usually appear here too.
- Services you can shop for: Typically title services, including title insurance, the title search and, in most of the country, the closing agent’s fee.
Other costs
- Taxes and government fees: Charges set by state or local governments rather than by the lender.
- Prepaids: Amounts paid in advance, such as homeowners insurance. The CFPB notes you usually pay the first 6 to 12 months of the premium at or before closing.
- Initial escrow deposit: Money placed in an escrow (impound) account so the servicer can pay property taxes and insurance when they come due.
The Loan Estimate and Closing Disclosure
Two federal forms let you track closing costs from application to signing.
| Document | When you get it | What it is for |
|---|---|---|
| Loan Estimate | Within three business days after the lender receives your application | Shows estimated loan terms, monthly payment, closing costs and cash to close so you can compare lenders |
| Closing Disclosure | At least three business days before you close | Shows the final loan terms and costs so you can compare them against your Loan Estimate |
According to the CFPB, if you have not received a Loan Estimate within three business days of applying, you should ask the lender whether and when it was sent. The three-day window before closing exists so you can review the Closing Disclosure, compare it with your estimate and ask questions before you sign.
How much can costs change?
The CFPB toolkit explains that charges for services you can shop for may increase at closing, but generally by no more than 10% over the amounts on your final Loan Estimate. If important information changes, the lender must issue a revised Loan Estimate. If a number on the Closing Disclosure looks different, ask your lender to explain why.
Costs You Can Shop For
Section C on page 2 of the Loan Estimate lists the services you can shop for. Your lender must give you a written list of providers in your area, and you can use a company not on that list if the lender agrees to work with it.
Title insurance
- Lender’s title insurance: Most lenders require it. It protects the amount the lender is loaning you.
- Owner’s title insurance: Optional. It protects your own financial investment in the home.
The CFPB says a seller cannot require you to buy title insurance from a particular title company. When comparing title costs, look at the bottom-line total for title-related services rather than individual items, since title companies may itemize fees differently from your Loan Estimate. The agency notes that research suggests shopping could save some borrowers as much as $500 on title services alone.
Homeowners insurance
Your homeowners insurance premium is set by the insurer you choose, not the lender, so you can compare premiums, coverage and service. Before you buy, review the most common mistakes to avoid when buying homeowners insurance.
Cash to Close: The Number That Matters on Closing Day
Cash to close is the total amount you need to bring to closing. Per the CFPB, it includes your down payment and closing costs, minus any deposit you already paid, seller credits and other adjustments. It is usually paid by cashier’s check or wire transfer, and the lender will ask you to document where the money came from. Page 1 of the Closing Disclosure shows the total, and page 3 shows how it was calculated.
A hypothetical cash-to-close estimate
The figures below are hypothetical, are not typical for any particular market, and are only meant to show how the pieces fit together.
- Purchase price: $300,000
- Down payment (10%): $30,000
- Loan costs (origination, appraisal, credit report, title services): $5,500
- Other costs (government fees, prepaid insurance, initial escrow deposit): $3,500
- Earnest money deposit already paid: minus $5,000
- Seller credit negotiated in the contract: minus $2,000
- Estimated cash to close: $32,000
Your own figures will come from your Loan Estimate. Use them, not averages, to plan your savings.
Points and Lender Credits: Trading Upfront Cost for Rate
Points and lender credits let you shift costs between closing day and your monthly payment.
- Discount points mean paying more at closing in exchange for a lower interest rate. On a $100,000 loan, one point costs $1,000.
- Lender credits work the other way: you accept a higher rate and the lender gives you a credit toward closing costs. The CFPB notes a similar loan without lender credits may be available.
Which option makes sense depends on how long you expect to keep the loan. Paying points generally pays off only if you stay long enough for the monthly savings to exceed the upfront cost. For help comparing loan options, see our guide to choosing the right mortgage.
Ways to Reduce or Manage Closing Costs
- Get several Loan Estimates. The CFPB toolkit suggests requesting written estimates from at least three lenders and comparing them side by side.
- Compare total loan costs. Section D on page 2 of the Loan Estimate shows total loan costs; also compare the APR and Total Interest Percentage.
- Shop the shoppable services. Title services and the closing agent can vary in price and service quality.
- Ask about discounts. Some lenders offer reductions, for example for completing a homebuyer education program.
- Negotiate seller credits. Depending on the market, a seller may agree to cover part of your costs through the purchase contract.
- Explore assistance programs. HUD notes that FHA loans allow gift funds from acceptable sources, such as family members or government down payment assistance programs, toward the down payment and closing costs.
Getting your financing lined up early also helps; our explainer on mortgage pre-approval covers that step.
Frequently Asked Questions
Are closing costs the same as the down payment?
No. The down payment is the part of the purchase price you pay up front. Closing costs are separate fees for the loan and the transaction. Both are part of your cash to close.
Can I use a title company that is not on my lender’s list?
Yes, if your lender agrees to work with it. The lender must provide a written list of providers for services you can shop for.
What should I do if my Closing Disclosure doesn’t match my Loan Estimate?
Compare the two line by line during the three business days before closing and ask your lender to explain differences. Some charges can change within limits, and the lender must issue revised disclosures when key information changes.
Is owner’s title insurance required?
The CFPB describes owner’s title insurance as optional, while lender’s title insurance is required by most lenders. Weigh the protection it offers against its cost.
Bottom Line
Closing costs cover the lender’s charges, required third-party services, title work, government fees, prepaid insurance and escrow deposits. Use your Loan Estimate to compare lenders, shop the services you are allowed to choose, and review your Closing Disclosure carefully during the three business days before signing. Planning for your full cash to close, not just the down payment, helps you avoid surprises on closing day.
Sources
- CFPB – What Is a Closing Disclosure?
- CFPB – Loan Estimate Explainer
- CFPB – I Never Received a Loan Estimate. What Can I Do?
- CFPB – Shop for Title Insurance and Other Closing Services
- CFPB – Your Home Loan Toolkit
- HUD – Dispelling Homebuying Myths
This article is for general information only and is not financial advice. See our Disclaimer.
