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Buying & closing

Closing Costs

Also called settlement costs, settlement charges

In short

Closing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.

Typical buyer range
2% to 5% of the price
When paid
At closing
Disclosed on
Loan Estimate, Closing Disclosure
Negotiable
Seller credits are common

What's included

  • Lender fees: origination, underwriting, points.
  • Third-party fees: appraisal, credit report, survey, title search, title insurance.
  • Government fees: recording fees and transfer taxes.
  • Prepaids: homeowners insurance, prepaid interest, and escrow reserves for taxes and insurance.

Who pays what

Buyers and sellers each have their own closing costs, and who pays which item follows local custom and the contract. Sellers usually pay agent commissions and their own payoff costs. Buyers can negotiate seller credits toward their costs, within loan program limits.

Closing costs on foreclosures

Bank-owned sellers may refuse to pay customary seller costs such as transfer taxes or may cap credits. At a foreclosure auction the buyer may also owe recording fees, transfer taxes, and any surviving liens or back taxes, which effectively work like closing costs.

Example

Estimating cash to close

A buyer purchases a $350,000 home with 10% down ($35,000). Lender, title and government fees total $8,400, and prepaids and escrow reserves add $3,600, for $12,000 in closing costs (about 3.4%). The seller agrees to a $5,000 credit. With $7,000 already paid as earnest money, cash to close is $35,000 + $12,000 - $5,000 - $7,000 = $35,000.

Closing Costs vs. Down Payment

Closing Costs

Closing costs are the fees and prepaid expenses paid to complete a real estate purchase, beyond the price and down payment. Buyers typically pay about 2% to 5% of the loan or purchase price.

Down Payment

A down payment is the part of a home's purchase price the buyer pays upfront in cash rather than borrowing. It is usually stated as a percentage of the price and is due at closing.

The differenceThe down payment is your equity in the home; closing costs are fees and prepaid expenses for the transaction. Both are due at closing but are separate amounts.

Frequently Asked Questions

Related terms

EscrowBuying & closingEscrow is an arrangement where a neutral third party holds money or documents until the conditions of a deal are met. The term also refers to the account a lender uses to pay a borrower's property taxes and insurance.Title InsuranceBuying & closingTitle insurance protects a buyer or lender against losses from ownership problems that existed before the purchase, such as undisclosed liens, forged documents or recording errors. It is paid once at closing.Earnest MoneyBuying & closingEarnest money is a deposit a buyer puts down when an offer is accepted to show good faith. It is held in escrow and usually credited toward the down payment or closing costs at closing.PITIMortgages & financingPITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders use it to judge whether a borrower can afford a home.Title SearchTitle & legalA title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.Private Mortgage Insurance (PMI)Mortgages & financingPrivate mortgage insurance (PMI) protects the lender, not the borrower, if a borrower defaults on a conventional loan. It is usually required when the down payment is less than 20% of the home's value.RefinanceMortgages & financingTo refinance is to replace an existing mortgage with a new one, usually to get a lower rate, change the loan term, or take cash out of the home's equity.Mortgage Pre-ApprovalMortgages & financingA mortgage pre-approval is a lender's conditional commitment to lend up to a set amount, based on verified income, assets and credit. Sellers often expect one before accepting an offer.

Learn more in the knowledge base

Closing Costs Explained: What Buyers Pay and WhyGuide · 9 min readClosing costs are the fees and prepaid expenses due when a purchase completes, on top of the down payment. They vary by state, loan and price, and some are negotiable. This guide explains each category, how to read your disclosures and how to keep costs down.Closing Day: What to Expect When You Buy a HomeGuide · 7 min readClosing is where the loan funds, the money changes hands and the home becomes yours. Knowing what to review beforehand, what to bring and what you are signing makes the day shorter and helps you catch problems while they can still be fixed.Closing and Recording: How a Property Purchase Becomes FinalGuide · 7 min readSigning papers is only part of closing. Money has to change hands safely, the deed has to be recorded in the public records and title insurance policies have to be issued. This guide explains those mechanics, who handles each one, how to protect your funds from wire fraud and which records to keep once the purchase is complete.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.