You've saved for your down payment, found your dream home, and have been pre-approved for a mortgage. Then your lender hands you a document showing thousands of dollars in additional closing fees you didn't expect.
Sound familiar? You're not alone.
Understanding closing costs before you start house hunting can save you thousands of dollars and prevent last-minute surprises. By the end of this guide, you'll know how to budget accurately, negotiate effectively, and make informed decisions that could save you significant money.
What Are Closing Costs?
Closing costs are the fees required to complete your home purchase, not including your down payment, and fall into two very different categories when it comes to your budget.
One-time transaction fees include:
Appraisals
Title searches
Loan processing
Credit reports
Prepaid costs that continue monthly:
Property taxes
Homeowners insurance
Mortgage insurance
The first category covers services you need once to complete the purchase. The second covers ongoing homeownership expenses that you'll pay monthly, but need to fund upfront at closing.
These costs exist because your lender must verify the home's value, the title company must ensure clear ownership, and local governments require proper documentation. Each professional service costs money, creating your total closing bill.
How Much Should You Budget?
How much do closing costs typically cost? Closing costs typically range from 2% to 5% of your home's purchase price.
Budget examples:
$200,000 home = $4,000 to $10,000
$300,000 home = $6,000 to $15,000
$400,000 home = $8,000 to $20,000
In 2025, there are some new fees that buyers should be aware of. According to the National Association of Realtors settlement announced in March 2024, the traditional real estate agent commission structure that standardized sellers paying both agents' fees has been eliminated. Now, in many cases buyers may need to pay their own agent's commission, on top of all loan costs, pushing the costs to buy a home beyond this prior benchmark range.
Other factors affecting your costs:
Loan type (FHA, VA, Conventional)
Location (state transfer taxes vary widely)
Credit score (affects mortgage insurance premiums)
Down payment size (smaller down payments typically require more mortgage insurance)
The Consumer Financial Protection Bureau reports that closing costs can vary by as much as $5,000 between lenders for the same loan, making comparison shopping essential. The Fincast affordability calculator blogs help you understand total homebuying costs beyond just closing fees.
Who Pays What: The Complete Breakdown
Understanding who typically pays each fee helps you identify opportunities for negotiation and prepares you for accurate budgeting.
Buyer responsibilities (mortgage-related):
Origination Fee: often 0.5–1% of loan amount
Appraisal: $300–$700+ depending on the property and loan type
Credit Report: they used to be about $30 but have increased to between $35 and $120
Lender's Title Insurance: $500–$1,500 but depends on loan amount
Mortgage Insurance: 0.2–2% of the loan amount, annually if required
Negotiable costs:
Owner's Title Insurance: $500–$2,000 but depends on the sale price
Transfer Taxes: 0–4% of sale price (varies by state)
Recording Fees: $50–$250+
Real Estate Commissions: 1–3% per agent (post-NAR settlement)
Attorney Fees: $1,000–$3,000 (required in 22 states)
Prepaid expenses (buyer):
First-year of homeowners insurance
Prorated property taxes
HOA fees if applicable
The key insight: more fees are negotiable than most buyers realize, especially in buyer-favorable markets.
Smart Strategies to Reduce Your Costs
The most effective cost reduction combines strategic timing, comprehensive comparison shopping, and leveraging available assistance programs.
Strategic lender evaluation:
Rather than comparing multiple lenders during pre-approval when quotes are merely estimates, get one quality Loan Estimate (the formal offer) right after going under contract on your new home. Then leverage technology to create competition among thousands of lenders simultaneously. This gives you access to real offers, in real time that you can choose from to maximize your savings.
Seller concessions:
In a buyer’s market, sellers may pay some closing costs to make their property more attractive. Conventional loans allow seller contributions up to 9% of the purchase price (with 25%+ down), 6% (with 10–24% down), or 3% (with less than 10% down).
First-time buyer programs:
Unprecedented assistance is available. NYC's HomeFirst provides up to $100,000. California's Dream for All offers up to 20% of home value. NACA eliminates down payments, closing costs, and mortgage insurance nationwide. And birdSEED awards $5,000-$15,000 grants to qualifying homebuyers in the DC and Philadelphia metro areas.
Service provider shopping:
Title insurance, attorney fees, and inspection costs often prove more negotiable than they initially appear, especially with strong credit or existing banking relationships.
The best approach involves shopping for, researching, and negotiating on all fronts when it comes to ways to reduce your closing costs.
Essential Documents That Protect You
Two critical documents provide both planning tools and legal protection throughout your transaction.
Loan Estimate (within 3 business days of application):
Shows expected closing costs in detail on Page 2
Focus on Section A (Origination Charges) and Section C (Services You Can Shop For)
Use this to identify savings opportunities
Closing Disclosure (at least 3 business days before closing):
Shows final, locked-in closing costs
Compare carefully against your Loan Estimate
Federal regulations protect you by limiting how much certain fees can increase
Your three-day review period between receiving the Closing Disclosure and closing is designed for your protection. Review every line item, verify that negotiated terms appear correctly, and don't hesitate to delay closing if significant issues need resolution.
Lenders pressuring you to sign without adequate review time are a major red flag–know your rights and most importantly know before you owe.
Common Questions Answered
These frequently asked questions address the most common concerns and misconceptions about closing costs.
Can closing costs be financed?
Yes, in some cases you can roll them into your loan amount or request a higher interest rate with a corresponding lender credit that can be applied to your costs. Both approaches mean paying more over time but work well if you plan to refinance within a few years.
What if I don't have enough cash?
Multiple solutions exist: seller concessions in buyer's markets, first-time buyer programs offering up to $50,000+ in combined benefits, properly documented family gifts, and "no closing cost" loans that build fees into interest rates.
How accurate are online calculators?
They provide useful ballpark estimates within $1,000–$3,000 for initial planning but can't account for your specific lender's fees or local variations. Use them for general budgeting, but only your Loan Estimate can give you real cost details.
What costs are negotiable?
More than most buyers realize: lender origination fees (especially with strong credit), service provider fees for title insurance and attorneys, seller concessions in appropriate markets, and some third-party fees through careful shopping.
The key is understanding which fees you can influence and timing your negotiations for maximum impact.
Bottom Line
Closing costs represent a significant but manageable component when you understand the timing and strategies available.
Recent industry changes create both new challenges and unprecedented savings opportunities. The NAR settlement means buyers may face higher costs through agent commissions, but expanded assistance programs and technology-enabled lender competition provide new ways to save.
Key takeaways:
Budget 2–5% of purchase price (potentially more with agent commissions)
Combine seller concessions, assistance programs, and comprehensive lender comparison to minimize closing costs
Use your 3-day review period to verify everything is as expected before you commit to your costs
If you want to see how much you can save, shop your Loan Estimate with Fincast and see which lenders can save you the most money on your closing costs.
Disclaimer: Nothing in this content should be considered financial advice. The examples and data shared are for general information only and may not reflect your personal situation. We do not guarantee the accuracy or completeness of the information provided. Always do your own research and speak with a qualified financial advisor before making any financial decisions.
