Overview
Closing costs are the 2-5% expense on top of the down payment that first-time buyers frequently underestimate or forget entirely. On a $300,000 home, closing costs of 3% represent $9,000 in additional cash needed at closing -- a significant addition to an already substantial down payment requirement.
Closing cost breakdown for home purchase
| Closing Cost Item | Typical Range | Negotiable? |
|---|---|---|
| Origination fee (lender) | 0.5-1% of loan | Yes -- compare multiple lenders |
| Title insurance | $500-$1,500 | Somewhat -- shop title companies |
| Appraisal | $400-$700 | No -- required by lender |
| Prepaid interest | Varies (based on closing date) | Choose late-month closing to minimize |
| Escrow setup (taxes/insurance) | 2-3 months reserves | No |
| Recording fees | $50-$500 | No -- government fee |
| Attorney fees | $500-$1,500 (in attorney states) | Yes -- compare attorneys |
| Total typical range | 2-5% of purchase price | Target 2-3% with negotiation |
In buyer-favorable markets, ask the seller to contribute to closing costs via seller concessions -- the seller effectively gives you a credit at closing. This reduces the cash you need to bring to closing while keeping the purchase price unchanged. Seller concessions are limited by loan type (3% conventional, 6% FHA) and property type.
Key Points
- Total closing costs typically run 2-5% of purchase price -- budget separately from down payment
- Some closing costs can be rolled into the loan amount (increases loan balance)
- FHA allows up to 6% in seller concessions toward closing costs
- No-closing-cost mortgages exist -- but typically come with a higher interest rate
- Shop at least 3 lenders for rate and fees comparison using the Loan Estimate form
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