Closing Costs

Closing costs are everything you pay to finalize a mortgage that is not the down payment. They fall into three groups: fees the lender charges to make the loan, fees paid to third parties for services the lender requires, and prepaid items that fund your escrow account and cover interest through the end of the month.

Lender fees include origination and underwriting charges and any discount points you elect to buy. Third-party costs cover the appraisal, title search, lender's title insurance, a credit report, sometimes a survey, and government recording fees or transfer taxes that vary enormously by state and county.

The prepaid portion surprises people because it is not really a fee at all — it is your own money arriving early. You typically fund several months of property tax and a full year of homeowners insurance into escrow, plus daily interest from closing to the first of the following month. Closing late in the month shrinks that interest line, which is a small but genuine lever.

Federal rules give you the numbers in advance and hold the lender to them. A Loan Estimate must arrive within three business days of your application and a Closing Disclosure at least three business days before closing. Some charges cannot increase at all from the estimate, others only within a 10% tolerance, and services you are allowed to shop for on your own carry no limit — so comparing the estimate against the disclosure line by line is the point of the exercise.

Buyers are not always the ones paying. Seller concessions and lender credits can cover part or all of the total, with the lender credit bought by accepting a higher interest rate. Sellers carry their own set of costs, historically including the real estate commissions.