Closing Costs Explained: What They Are and How to Prepare
You saved your down payment. You got approved. Then someone hands you a closing disclosure with thousands of dollars in fees you were not expecting. Closing costs catch more first-time buyers off guard than almost anything else.
What Closing Costs Include
Closing costs typically run 2-5% of the purchase price. They include lender fees (origination, underwriting, appraisal), title fees (title search, title insurance, settlement), government fees (recording, transfer taxes), and prepaid items (homeowners insurance, property tax escrow, prepaid interest). Your lender is required to give you a Loan Estimate within 3 business days of applying, which lists estimated closing costs.
Which Fees Are Negotiable
Lender origination fees are sometimes negotiable — especially if you are comparing multiple lenders. Title company fees vary, and you usually have the right to shop for your own title company. You cannot negotiate government recording fees or taxes. You can sometimes negotiate seller concessions, where the seller pays a portion of your closing costs as part of the deal.
How to Prepare
Budget for 3% of your purchase price on top of your down payment as a safe estimate. Compare your initial Loan Estimate to your final Closing Disclosure — by law, certain fees cannot increase by more than 10% from estimate to closing. If something looks wrong, ask about it before closing day.
Key Takeaways
- ✓Closing costs are typically 2-5% of the purchase price, on top of your down payment
- ✓You can shop for title services and negotiate some lender fees
- ✓Budget for 3% of purchase price as a safe closing cost estimate
- ✓Compare your Loan Estimate to your Closing Disclosure for surprises
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