Closing costs are everything you pay to complete a property purchase beyond the down payment itself — lender charges, third-party services, government taxes and prepaid escrow. They commonly run 2% to 5% of the purchase price, and they are due in cash on the day.
The four groups
The distinction matters because roughly a third of the total is genuinely negotiable, and your Loan Estimate marks which services you are permitted to shop for yourself.
| Category | Typical items | Can you shop for it? |
|---|---|---|
| Lender charges | Origination, underwriting, points, appraisal | Partly — compare lenders |
| Third-party services | Title insurance, settlement, survey, inspection | Often yes |
| Government | Recording fees, transfer and stamp taxes | No — fixed by statute |
| Prepaid & escrow | First-year insurance, property tax reserve, prepaid interest | No, but amounts vary by timing |
Loan Estimate and Closing Disclosure
US lenders must give you a Loan Estimate within three business days of your application, and a Closing Disclosure at least three business days before settlement. Both use a standardised format specifically so you can compare offers line by line.
Use that three-day window. Compare the Closing Disclosure against the Loan Estimate and question anything that has moved — some fees may not increase at all, and others only within a 10% tolerance.
Fees that increase beyond the permitted tolerance must be refunded to you. Lenders do not always volunteer this.
Prepaid items are not really costs
Property tax escrow and the first year of insurance are often the largest line items, but they are money you would owe regardless. You are pre-funding an account, not paying a fee.
The genuine transaction costs are the lender and third-party charges plus government taxes. Separating the two makes offers far easier to compare, which is why the calculator subtotals them independently.
Reducing what you pay
- Ask the seller for a credit toward closing costs — routine in slower markets, and often more achievable than a price reduction.
- Shop title insurance and settlement services separately; pricing varies substantially for identical cover.
- Compare Loan Estimates from at least three lenders using APR, which folds the fees in.
- Close near the end of a month to reduce prepaid interest.
- Ask about lender credits if you are short of cash and can accept a slightly higher rate.
Worked example
Using the values pre-loaded in the calculator above:
| Input | Value |
|---|---|
| Purchase price ($) | 400000 |
| Down payment (%) | 20 |
| Loan origination fee (% of loan) | 1 |
| Discount points (% of loan) | 0 |
| Appraisal ($) | 600 |
| Credit report & underwriting ($) | 950 |
| Title insurance & search ($) | 1800 |
| Attorney / settlement fee ($) | 900 |
| Survey & inspection ($) | 700 |
| Output | Value |
|---|---|
| Cash needed at closing | $94,350.00 |
| Origination fee | $3,200.00 |
| Discount points | $0.00 |
| Appraisal | $600.00 |
| Credit report & underwriting | $950.00 |
| Subtotal | $4,750.00 |
| Title insurance & search | $1,800.00 |
| Attorney / settlement | $900.00 |
Frequently asked questions
How much are closing costs?
Typically 2% to 5% of the purchase price. On a $400,000 home that is roughly $8,000 to $20,000, on top of the down payment.
Who pays closing costs, buyer or seller?
Both pay some. Buyers cover lender and prepaid items; sellers typically pay agent commissions and some transfer taxes. Local custom varies, and buyer costs are negotiable as a seller credit.
Can closing costs be rolled into the mortgage?
Sometimes, through lender credits or by financing them on a refinance. You then pay interest on them for the life of the loan, so it is a cash-flow convenience rather than a saving.
What is the difference between closing costs and a down payment?
The down payment is equity in the property. Closing costs are transaction fees and prepaid escrow. Both are due at closing but only the down payment becomes your stake in the home.
Are closing costs tax deductible?
Mostly not. Discount points and prepaid mortgage interest may be deductible; property taxes paid at closing generally are. Most other fees are added to your cost basis instead. Confirm with a tax professional.