Closing Costs Calculator
Estimate the "hidden fees" you'll need to pay on closing day.
Estimated Itemized Breakdown
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What Are Closing Costs?
Closing costs are the processing fees you pay to your lender and various third parties to finalize a real estate transaction. While buyers spend months agonizing over the down payment, they often forget to budget for closing costs, which can result in a nasty surprise at the finish line.
As a general rule of thumb, buyers should expect to pay between 2% and 5% of the total purchase price of the home in closing costs. If you buy a $400,000 home, your closing costs could range anywhere from $8,000 to $20,000. These fees must typically be paid upfront in cash (usually via a cashier's check or wire transfer) on closing day.
A Breakdown of Common Closing Fees
Your closing costs are made up of dozens of individual line items. While the exact fees vary by location and lender, they generally fall into four main categories:
1. Lender and Origination Fees
These are the fees your bank charges to process, underwrite, and create your loan.
- Origination Fee: Typically 0.5% to 1% of the loan amount. This covers the lender's administrative costs.
- Application Fee: A non-refundable fee to process your initial mortgage application (sometimes rolled into the origination fee).
- Underwriting Fee: The cost of evaluating your financial profile to ensure you qualify for the loan.
- Discount Points: Optional fees you pay directly to the lender at closing in exchange for a lower interest rate over the life of the loan.
2. Third-Party Property Fees
These are fees paid to independent companies that verify the home's value and physical condition.
- Appraisal Fee: ($300-$600) Your lender requires a professional appraisal to confirm the home is actually worth the amount you are borrowing.
- Home Inspection Fee: ($300-$500) While usually paid at the time of the inspection rather than at closing, it is still a cost of buying the home.
- Survey Fee: ($200-$500) If the property boundaries are unclear, a survey may be required to verify the exact lot lines.
3. Title and Legal Fees
These fees ensure that the seller actually owns the home and has the legal right to sell it to you, free of any old liens or lawsuits.
- Title Search Fee: The cost of searching public records for any claims or liens against the property.
- Lender's Title Insurance: A one-time premium that protects the lender if a title dispute arises later. This is required.
- Owner's Title Insurance: A one-time premium that protects you (the buyer) if someone sues and says they have a claim against the home. This is optional but highly recommended.
- Recording Fee: Paid to the local city or county government to officially record the new deed and mortgage.
4. Prepaid Costs and Escrow
These aren't technically "fees" for services, but rather upfront payments for the ongoing costs of owning the home. Lenders often require you to prepay several months of these expenses into an escrow account.
- Prepaid Property Taxes: Usually, lenders require you to put 2 to 6 months of property taxes into your escrow account upfront.
- Prepaid Homeowners Insurance: Lenders typically require you to pay the first full year of homeowners insurance upfront, plus a few months of extra premium into escrow.
- Prepaid Interest: The interest that accrues on your mortgage between the closing date and your first official monthly payment.
How to Reduce Your Closing Costs
While you can't avoid closing costs entirely, you can minimize them.
- Shop Around for Lenders: Lenders charge wildly different origination and underwriting fees. Compare the "Loan Estimate" document from at least three different lenders before committing.
- Shop for Title Services: You are not required to use the title company or settlement agent recommended by your lender or real estate agent. You can shop around for lower title and settlement fees.
- Negotiate Seller Concessions: In a buyer's market, you can ask the seller to pay a portion of your closing costs. However, in a competitive seller's market, asking for concessions will likely cause your offer to be rejected.
- Look for Grants: Many state and local housing authorities offer grants that cover closing costs for first-time buyers who meet certain income limits.
Frequently Asked Questions
Can I roll my closing costs into my mortgage?
It depends on the loan type. For most conventional loans, closing costs must be paid out-of-pocket at closing. Some FHA and VA loans allow you to roll certain closing costs into the loan amount. Alternatively, you can ask for a "no-closing-cost" mortgage, where the lender covers the upfront fees, but in exchange, they will charge you a higher interest rate for the entire life of the loan.
When exactly do I find out my final closing costs?
By law, your lender must provide you with a document called a "Closing Disclosure" at least three business days before your scheduled closing date. This document will list every single fee down to the penny and state the exact amount you need to bring to the closing table via wire transfer or cashier's check.
Are closing costs tax-deductible?
Most closing costs are not tax-deductible in the year you buy the house. However, a few items, such as mortgage points (discount points) and prepaid property taxes, can usually be deducted if you choose to itemize your deductions rather than taking the standard deduction.