When you’re getting ready to buy a home, you probably have your eye on the down payment and your future monthly mortgage bill.
But there’s another piece of the financial puzzle that deserves your attention: closing costs. These fees are part of finalizing your home loan and, if not planned for, can catch you off guard.
This guide breaks down what closing costs are, what’s typically included, and how to budget smartly so you’re fully prepared when it’s time to close.
Apply for a home loan with GO Mortgage.What are closing costs and how much should you budget?
Closing costs are the collection of fees required to complete your real estate transaction. These typically range between 2% and 6% of your loan amount. For instance, on a $300,000 mortgage, that means you should expect to pay between $6,000 and $18,000 in closing costs—on top of your down payment.
While it’s sometimes possible to roll these fees into your mortgage, doing so means paying interest on them over time. If your goal is to minimize long-term costs, it’s often best to pay them upfront.
Looking for help? Many cities, counties, and states offer down payment and closing cost assistance programs. Start exploring your options here.
What’s included in closing costs for buyers?
Here’s a closer look at what buyers typically pay for at closing:
- Appraisal fee: Your lender will require a professional appraisal to determine the home’s market value; this usually costs between $300 and $600
- Title insurance: This protects against ownership disputes or claims on the property.
- Lender fees: These often include application, origination, underwriting, and processing fees, which can total 0.5% to 1% of the loan amount
- Attorney fees: In some states, a real estate attorney is required to handle or review closing documents
- Escrow services and recording fees: These fees cover the handling and recording of funds and documents, including the property deed.
- Prepaid costs: You may need to prepay a few months’ worth of property taxes, homeowner’s insurance, and possibly homeowners association (HOA) dues.
Even if you’re purchasing with cash, you’ll still pay for many of these services—though mortgage-specific lender fees won’t apply.
What’s included in closing costs for sellers?
Sellers also pay closing costs, which are typically deducted from the proceeds of the sale. Here are some common charges:
- Real estate agent commissions: These are usually 5% to 6% of the home’s sale price, split between the buyer’s and seller’s agents
- Transfer taxes and title insurance fees: Depending on local laws, sellers may be responsible for transfer taxes and title insurance costs
- Legal and escrow fees: If your transaction involves an attorney or escrow company, fees apply here, too
- Prorated property expenses: This includes property taxes and HOA dues accrued during the seller’s ownership period
- Buyer credits: In a buyer’s market or during negotiations, sellers might offer closing cost credits to incentivize the sale
Some of these expenses are negotiable, and what’s customary can vary by location. Always review your seller net sheet or closing statement to see the breakdown.
How to budget for closing costs
Closing costs shouldn’t be an afterthought. Here are four ways to stay ahead of the game:
- Start saving early: Open a savings account specifically for homebuying costs—including closing fees—and contribute regularly.
- Get a full estimate: When planning your budget, include a 2%–6% buffer for closing costs along with your down payment.
- Ask about seller concessions: In some cases, sellers can contribute toward your closing costs. There are limits, so your loan type matters.
- Explore grant programs: Many first-time buyers are eligible for grants or low-interest loans to offset closing costs. Check what’s available to you.
Why closing costs vary—and what you can do about it
It’s not uncommon for closing costs to differ significantly between buyers—even on homes with similar prices. Why? Several factors can drive variation, including:
- Loan type: FHA, VA, and conventional loans all have different fee structures and required prepaid items.
- Location-specific fees: State and county taxes, title charges, and recording fees can fluctuate widely.
- Lender policies: Some lenders waive certain fees or structure them differently, so it’s worth shopping around.
- Third-party services: Appraisers, title companies, and attorneys all set their own rates, which can be negotiated or compared.
To keep your costs in check, ask for itemized quotes from multiple lenders and service providers before locking anything in. A mortgage broker can help pinpoint savings opportunities tailored to your location and financial situation.
How to estimate and review your closing costs
Your lender is required to give you two key documents:
- Loan Estimate: You’ll receive this within three business days of applying for your loan. It outlines estimated loan terms, closing costs, and prepaids.
- Closing Disclosure: You’ll get this at least three business days before you sign. It details your final costs, interest rate, and payment amounts.
Here’s what to focus on when reviewing your Closing Disclosure:
- Final interest rate: Make sure it matches your expectations.
- Monthly mortgage payment: Includes principal, interest, insurance, and taxes.
- Total closing costs: Double-check for any discrepancies or unexpected charges.
- Taxes and insurance: Ensure these line up with your earlier estimates.
- Loan terms: If you have an adjustable-rate mortgage, review potential future rate changes.
- Prepayment penalties: Some loans have penalties for early payoff—these should be clearly disclosed.
If you see something that doesn’t make sense or wasn’t part of your Loan Estimate, don’t hesitate to ask your lender for clarification. Transparency is key at this stage.
Ready to make your move? Let’s do it together
Understanding your closing costs helps you approach your home purchase with confidence. Whether you’re buying your first home or your fifth, planning ahead sets the stage for a smoother closing experience.
At GO Mortgage, our experienced team is here to walk you through the entire journey—from preapproval to closing day—with personalized guidance and smart financial tools. Start your homeownership journey today.
Want more guidance? Explore these helpful resources:
With the right planning, you won’t just buy a house—you’ll own it with peace of mind.