Closing costs are the fees and prepaid items you pay to finish a home purchase, on top of your down payment. They are commonly estimated at about 2% to 5% of the price, but your state's taxes, your loan type and your lender move that number a lot. For a breakdown of what each fee is, read what closing costs are and how much they cost. This guide is the step-by-step plan for estimating them, lowering them and paying them.
Step 01 of 07
Know the categories
Closing costs fall into a few groups:
- Lender charges. Origination or underwriting fees, discount points if you buy them, and the credit report.
- Third-party services. Appraisal, title search, lender's title insurance, settlement or attorney fees, survey, and pest inspection where required.
- Government fees. Recording fees and, in many states, transfer taxes. Who pays transfer tax is set by local custom and your contract.
- Prepaid items. Prepaid mortgage interest from closing to month-end, the first year of homeowners insurance, and an initial escrow deposit for taxes and insurance.
- Loan program fees. FHA's 1.75% upfront mortgage insurance premium, the VA funding fee, or USDA's 1% guarantee fee. Each can usually be financed into the loan instead of paid in cash.
Owner's title insurance, HOA transfer fees and a home warranty may also show up, depending on your contract.
Figure 1
Where $9,000 of closing costs might go
- Lender charges
- Title, appraisal and settlement
- Taxes and government fees
- Prepaids and escrow
Closing costs
Source: HouseBuyerGuides.com calculations. Illustrative only. Transfer taxes, title rates and prepaid amounts vary widely by state, county and closing date. Your Loan Estimate shows your own numbers.
View data tableHide data table
| Lender charges | Title, appraisal and settlement | Taxes and government fees | Prepaids and escrow | Total | |
|---|---|---|---|---|---|
| Closing costs | $1,500 | $3,000 | $1,200 | $3,300 | $9,000 |
Step 02 of 07
Read your Loan Estimate
Within three business days of your loan application, each lender must send a Loan Estimate. Page 2 lists closing costs in sections:
- Section A, origination charges: the lender's own fees
- Section B, services you cannot shop for: chosen by the lender, such as the appraisal
- Section C, services you can shop for: often title and settlement
- Sections E to H: taxes, government fees, prepaids, escrow and other costs
The Cash to Close line on page 3 is the number to budget for. Get Loan Estimates from two or three lenders and compare Section A side by side. That is where lenders differ most. The CFPB's Loan Estimate explainer shows every line.
Step 03 of 07
Shop the services you can
The Loan Estimate includes a list of providers for the Section C services. You can use one of them or choose your own. Getting quotes for title and settlement services can save a few hundred dollars. Ask whether your state sets title insurance rates; some do, and in those states you can't shop on price.
Also shop homeowners insurance. You pay the first year at or before closing, and premiums for the same house can vary widely between companies.
Step 04 of 07
Negotiate seller credits
You can ask the seller to pay part of your closing costs as a seller credit (also called a seller concession), written into your offer. Each loan type caps the amount:
- Conventional: usually 3% of the price with less than 10% down, and more with larger down payments
- FHA: up to 6% of the price
- VA: the seller can pay all normal closing costs, plus concessions of up to 4% for other items
- USDA: up to 6% of the price
Figure 2
The most a seller can contribute on a $300,000 home
Conventional, under 10% down
Conventional, 10%–25% down
FHA
USDA
VA concessions
Source: HouseBuyerGuides.com calculations. Conventional: 3% of the price with less than 10% down, 6% with 10% to 25% down. FHA and USDA: 6%. VA: all normal closing costs, plus concessions of up to 4%. A credit can't exceed your actual costs. Confirm limits with your lender.
View data tableHide data table
| Value | Detail | |
|---|---|---|
| Conventional, under 10% down | $9,000 | 3% |
| Conventional, 10%–25% down | $18,000 | 6% |
| FHA | $18,000 | 6% |
| USDA | $18,000 | 6% |
| VA concessions | $12,000 | 4%, plus normal closing costs |
Confirm the current limit with your lender before you write the offer. A credit tends to work better in a slower market or when the inspection turns up repairs.
Step 05 of 07
Use assistance and lender credits
- Down payment assistance. Many programs cover closing costs as well as the down payment, or let money left over after the down payment go toward closing costs. Search your city or state on this site, or read the down payment assistance guide.
- Lender credits. Accept a slightly higher rate, and the lender pays part of your closing costs. This helps most if you expect to sell or refinance within a few years.
- Employer and lender grants. Some employers, credit unions and banks offer closing cost grants, especially in certain census tracts.
- Close near the end of the month. That lowers prepaid interest, though it doesn't change your total loan cost.
Step 06 of 07
Check the Closing Disclosure
Your lender must send the Closing Disclosure at least three business days before closing. Compare it with your latest Loan Estimate:
- Lender fees in Section A generally cannot go up unless there was a valid change, such as you changed the loan.
- Some third-party fees can go up by no more than 10% in total.
- Prepaids and escrow can change with the closing date and your insurance quote.
Ask your lender to explain any increase, and fix errors before closing day, not at the table. The CFPB's Closing Disclosure explainer walks through the form.
Step 07 of 07
Pay safely at closing
You usually pay cash to close by wire transfer or cashier's check. Your earnest money deposit is credited against the total.