Closing Costs Explained: What You Pay When Buying or Refinancing

The Surprise at the Finish Line

You saved for the down payment. You found the house. You got the loan approved. Then, a few days before signing, you get the "Closing Disclosure" and see you owe an extra $10,000.

Welcome to Closing Costs.

What Are Closing Costs?

These are fees paid at the closing of a real estate transaction. They typically range from 2% to 5% of the loan amount.

On a $400,000 home, that is $8,000 to $20,000 due upfront.

The Breakdown: Where Does the Money Go?

1. Lender Fees

• Origination Fee: Determining your creditworthiness.
• Discount Points: Upfront fees paid to lower your interest rate.
• Underwriting Fee: Processing the loan.

2. Third-Party Fees

• Appraisal: Verifying the home's value ($400-$800).
• Title Insurance: Protecting against legal claims on the property.
• Home Inspection: Checking for damage (often paid by buyer directly, not at closing).

3. Prepaid Items (The "Prepaids")

These aren't fees, but payments made in advance.

• Property Taxes: Often 6 months upfront to fill your escrow account.
• Homeowners Insurance: Usually 1 full year paid upfront.
• Prepaid Interest: Interest from the closing date to the end of the month.

Can You Negotiate Them?

Yes!

• Shop Around: Lenders control their own Origination and Underwriting fees. Get quotes from 3 lenders and ask them to beat the lowest "Loan Estimate."
• Seller Concessions: In a buyer's market, you can ask the seller to pay for some of your closing costs.
• Title Insurance: You can sometimes shop for a cheaper title company.

Closing Costs on a Refinance

When refinancing, you pay many of these same fees again (Appraisal, Title, Origination). This is why refinancing isn't free.

However, you can often "roll" these costs into the loan balance, so you don't have to pay cash out of pocket (though you pay interest on them over time).

Summary

Budget for closing costs early. If you are scraping together every penny just for the down payment, you might not have enough to actually close the deal.

Use our Refinance Calculator to see if paying these costs makes sense for a lower rate.