Mortgage closing costs: what you'll pay and how to lower it

What closing costs are

Closing costs are everything you pay to finalize the purchase and the loan, other than the down payment itself. They fall into four groups:

• Lender charges: origination or underwriting fees and any discount points you choose to buy.
• Third-party services: appraisal, credit report, title search and title insurance, settlement or escrow agent, survey, inspections.
• Government fees: recording fees and, in some states and cities, transfer taxes.
• Prepaids and escrow deposits: interest from closing day to the end of the month, the first year of homeowners insurance and a starting balance for your escrow account.

Prepaids aren't really "fees" — they're costs of owning the home that you pay in advance — but they are part of the cash you need at closing, so budget for them.

A full example

Here's a realistic breakdown for a $400,000 home bought with a $320,000 loan at 6.75%, property tax of 1.1% a year and $1,500 a year for homeowners insurance. Actual amounts vary by lender, state and county.

Add the $80,000 down payment and this buyer needs about $91,300 in cash to close, minus any earnest money already deposited and any credits from the seller or lender.

Reading your Loan Estimate and Closing Disclosure

Federal rules give you two standardized documents that make closing costs easy to compare:

• Loan Estimate: the lender must send it within three business days of receiving your application. It groups costs into sections — origination charges (A), services you cannot shop for (B), services you can shop for (C), taxes and government fees (E), prepaids (F) and the initial escrow payment (G).
• Closing Disclosure: you must receive it at least three business days before closing. Compare it line by line with your Loan Estimate; certain fees can't increase at all, and others can only rise within set limits.

Because every lender uses the same Loan Estimate form, the best way to compare offers is to request two or three on the same day and put them side by side, focusing on sections A and B plus the interest rate and APR.

Seven ways to lower your closing costs

1. Compare lenders' origination charges. Section A is where lenders differ most, and it's negotiable.
2. Shop for section C services. Title and settlement services can often be bought from providers you choose; get quotes.
3. Ask the seller for concessions. Sellers can contribute toward your closing costs, up to limits that depend on the loan type and your down payment (for example, up to 6% of the price on FHA loans).
4. Consider lender credits. A lender can cover some costs in exchange for a slightly higher rate. It makes sense if you expect to sell or refinance within a few years.
5. Don't buy points you won't keep long enough. Points lower your rate but only pay off after several years — see the break-even math in our APR guide.
6. Pick your closing date. Prepaid interest covers the days from closing to the end of the month, so closing late in the month reduces it (it doesn't change your total interest, only how much cash you need that day).
7. Look for assistance programs. Many state and local housing agencies offer grants or forgivable loans for down payment and closing costs, especially for first-time buyers.

Can you roll closing costs into the loan?

On a purchase, generally not: the loan amount is based on the price and your down payment, so closing costs are paid in cash or covered by credits. A few charges are the exception — such as the upfront mortgage insurance premium on FHA loans or the VA funding fee — which can be financed. On a refinance, adding closing costs to the new balance is common, but it means paying interest on them for years.

"No-closing-cost" mortgages

A no-closing-cost mortgage doesn't make the costs disappear: the lender either adds them to your balance or charges a higher interest rate to cover them. That can be a sensible choice if you have limited cash or plan to move soon. If you'll keep the loan for many years, the higher rate usually ends up costing more than paying the fees up front. Run both versions through the calculator and compare total interest.

Closing cost checklist

• Budget 2%–5% of the loan amount on top of your down payment.
• Request Loan Estimates from several lenders on the same day.
• Shop for title and settlement services where allowed.
• Negotiate seller concessions as part of your offer.
• Compare your Closing Disclosure with the Loan Estimate before closing day.
• Wire funds only after confirming instructions by phone with your settlement agent — wire fraud targeting homebuyers is common.

This guide is for general information and is not financial advice. Example figures use the standard amortization formula and are rounded. How we write our guides.