What to Know About Mortgage Closing Costs and How to Plan for Them
When you’re buying a home or refinancing, you probably focus on the big numbers—like your down payment or monthly mortgage. But there’s another set of costs you shouldn’t overlook: closing costs.
Closing costs are the fees and expenses you pay when finalizing your mortgage. While they can vary based on your location, lender, and loan type, they typically range from 2% to 5% of your loan amount. That means for a $300,000 home, closing costs could add up to $6,000–$15,000.
Let’s break down the most common closing costs and how you can plan for—and even reduce—them.
Common Closing Costs
Here are some of the key fees you’re likely to encounter:
1. Loan Origination Fee
This fee, charged by your lender, covers the cost of processing your loan. It’s often around 0.5% to 1% of the loan amount.
2. Appraisal Fee
Before approving your mortgage, the lender will require an appraisal to determine the value of the home. This typically costs between $300 and $600.
3. Credit Report Fee
Lenders pull your credit to assess your financial risk. This usually costs $30 to $50.
4. Title Search and Title Insurance
A title search ensures the property is free of legal claims. Title insurance protects you and the lender against future disputes. Combined, these can cost $500 to $1,500.
5. Escrow Fees
These fees cover the services of the escrow company that manages the transfer of funds and documents. Costs vary, but can be $500 to $1,000 or more.
6. Prepaid Taxes and Insurance
Lenders often require you to prepay property taxes and homeowners insurance into an escrow account, which can add a few thousand dollars to your closing costs depending on your location and timing.
7. Recording Fees
Local governments charge a fee to record the new deed and mortgage. This varies by state and county, but usually falls between $25 and $250.
Tips for Budgeting for Closing Costs
Planning ahead can make closing costs less stressful. Here’s how:
✔ Request a Loan Estimate Early
Within three business days of applying for a mortgage, your lender must provide a Loan Estimate, which details expected closing costs. Use this to start budgeting.
✔ Set Aside Extra Funds
Aim to save more than you expect. Having a cushion of $1,000 to $2,000 above your estimated closing costs can cover any surprises.
✔ Consider Seller Concessions
In some cases, especially in a buyer’s market, you can negotiate with the seller to cover part (or all) of your closing costs.
How to Reduce Closing Costs
While some fees are non-negotiable, others aren’t set in stone. Here are a few strategies:
🏦 Shop Around for Lenders
Different lenders offer different fee structures. Compare Loan Estimates from multiple lenders to find the best deal.
🛡️ Ask About Lender Credits
Some lenders offer “lender credits,” which reduce your upfront closing costs in exchange for a slightly higher interest rate.
📋 Review the Closing Disclosure Carefully
You’ll receive this document at least three days before closing. Double-check everything and question any unexpected or high fees. Your lender should explain any changes or unusual charges.
Final Thoughts
Closing costs are a crucial part of the homebuying journey, but with the right planning and a bit of negotiation, they don’t have to be overwhelming. Understanding what you're paying for—and where you can save—can lead to a smoother closing experience and more money in your pocket.
Ready to explore your mortgage options or have questions about closing costs? Contact our team today—we’re here to guide you every step of the way.