Buying a home means more than funding the purchase price. You’ll also need cash at the table for closing costs—one‑time charges that cover origination, services, taxes and prepaids. Nationally these typically run about 2%–5%of the purchase price. Knowing what’s in that figure—and how to shrink it—can save you thousands on day one of ownership.
What are closing costs?
Closing costs are the fees due at settlement that aren’t part of the down payment. Some are lender fees, some are third‑party services, and some are government taxes or prepayments for items like interest or homeowners insurance. Your Loan Estimate (LE) and later your Closing Disclosure (CD) will itemize these line‑by‑line.
Typical fee categories
- Lender charges: origination, points (if you choose to buy down the rate), credit report.
- Third‑party services: appraisal, title search & insurance, settlement/escrow, survey (where required).
- Government: transfer taxes, recording fees.
- Prepaids & escrow setup: per‑diem interest, first year of homeowners insurance, initial deposits for taxes/insurance escrow.
How much should I budget?
As a quick rule of thumb, set aside 3% of the purchase price for closing costs. On a $350,000 home that’s about $10,500. The exact number varies by state and loan type; areas with transfer taxes (e.g. many East‑coast cities) run higher than those without.
Example breakdown
- Lender & third‑party fees: $6,000
- Title & settlement: $2,400
- Taxes & recording: $1,100
- Prepaids & escrow: $1,000
Ways to reduce closing costs
- Ask for seller credits to cover a portion of costs.
- Compare Lender A vs. B on origination and rate/points trade‑offs.
- Choose a no‑points rate if you’ll sell or refinance within ~5 years.
- Shop title & settlement where allowed—you’re often free to choose.
- Confirm you’re not paying duplicate fees (e.g. “application” and “origination”).
Key documents & timing
You’ll receive a Loan Estimate within 3 business days of applying and a final Closing Disclosure at least 3 business days before closing. Compare them side‑by‑side and question any large swings.
This article is for educational purposes only and is not financial advice.