Mortgage Closing Costs Explained: What to Expect
Last updated October 2026
Quick answer
Closing costs typically run 2%–5% of the purchase price, on top of your down payment. On a $400,000 home, that's roughly $8,000–$20,000 — split across lender fees, third-party services, and prepaid items like taxes and insurance. They're not optional and generally can't be rolled into a purchase loan (VA and USDA are exceptions for their upfront fees), so budget for this cash separately from your down payment.
The example we'll use throughout
A representative breakdown at 3% of a $400,000 purchase — $12,000 total:
| Category | Line item | Estimated cost |
|---|---|---|
| Lender fees | Loan origination fee | $3,200 |
| Appraisal | $600 | |
| Credit report | $75 | |
| Third-party services | Title search & insurance | $2,000 |
| Attorney / settlement fee | $800 | |
| Recording fees & transfer taxes | $900 | |
| Prepaids | Prepaid interest (closing to month-end) | $600 |
| Property tax escrow cushion | $2,000 | |
| Homeowners insurance (1st year + escrow cushion) | $1,825 | |
| Total | $12,000 |
Notice "prepaids" aren't really fees — they're the first deposits into your escrow account and your first bit of interest, money you'd owe eventually anyway, just collected upfront. See What Is an Escrow Account? for what happens to that money after closing.
Loan Estimate vs. Closing Disclosure
| Loan Estimate (LE) | Closing Disclosure (CD) | |
|---|---|---|
| When you get it | Within 3 business days of applying | At least 3 business days before closing |
| What it is | An early projection | The final, exact numbers |
| Use it to | Compare lenders apples-to-apples | Confirm nothing changed beyond allowed tolerances |
Who pays what
Buyers typically cover lender fees, appraisal, title insurance, and prepaids — everything in the table above. Sellers typically cover their agent's commission (usually the largest single cost in the whole transaction, separate from a buyer's closing costs) and, in some states, transfer taxes. Sellers can also agree to cover some of the buyer's costs as a negotiated concession — the maximum allowed depends on your loan program; see FHA vs. Conventional Loan for the specific caps.
Ways to reduce what you pay
- Compare Loan Estimates from multiple lenders. Origination fees alone can range from $0 to several thousand dollars for the same loan.
- Ask about a lender credit. Trading a slightly higher rate for reduced closing costs is the inverse of buying points — useful if you're short on cash but plan to refinance or move within a few years.
- Negotiate seller concessions, especially in a slower market.
- Time your closing date. Closing near the end of the month reduces the prepaid interest line item, since it only covers the days remaining until your first full payment cycle.
Things to consider
- Costs vary enormously by state. Transfer taxes alone can push total closing costs from under 1% of price in some states to over 3% in others.
- A home inspection is usually separate. It's typically paid directly to the inspector before closing, not bundled into the Closing Disclosure total.
- VA and USDA borrowers finance their upfront fee — everything else in the table above is still due in cash at closing on top of that.
- Discount points are optional and separate from these baseline costs — see What Are Mortgage Points? if you're considering buying down your rate.
Run your own numbers
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The figures on this page are an example loan. MortMetrix builds your full amortization schedule from your real balance, rate and term, then shows exactly what any extra payment does to your payoff date, lifetime interest and equity.
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Frequently asked questions
Can I roll closing costs into my loan?
Not on a standard purchase loan — the loan generally can't exceed the price minus your required down payment. VA and USDA are exceptions for their specific upfront fees, which can be financed. On refinances, rolling closing costs into the new balance is common.
What's the difference between a Loan Estimate and a Closing Disclosure?
The Loan Estimate is an early projection you receive within 3 business days of applying. The Closing Disclosure is the final, exact accounting, provided at least 3 business days before you close.
Can the seller pay my closing costs?
Yes, within limits that depend on your loan program and down payment size — commonly ranging from 3% to 9% of the price. FHA allows up to 6%.
Are closing costs tax deductible?
Some prepaid items, like mortgage interest and property taxes paid at closing, may be deductible if you itemize. Most fees — origination, title, appraisal — generally aren't directly deductible, though some can adjust your cost basis. Talk to a tax professional about your specific situation.
How can I reduce my closing costs?
Compare Loan Estimates from multiple lenders, ask about a lender credit, negotiate seller concessions, and consider timing your closing date near month-end to reduce prepaid interest.
Related guides
How Much Should You Put Down on a House?
Every down payment option from 0% to 20%, side by side, with the monthly cost of each.
Read moreMortgage Pre-Approval vs. Pre-Qualification: What's the Difference?
What each one actually requires, how long it takes, and why only one of them gets an offer taken seriously.
Read moreWhat Is an Escrow Account and How Does It Work?
Why a "fixed" payment still changes each year, how shortages are recovered, and when you can skip escrow.
Read moreWhat Are Mortgage Points and Are They Worth Buying?
What a point costs, what it buys, and the break-even that decides whether it was worth it.
Read moreFigures on this page are generated from the same amortization engine that powers the MortMetrix dashboard, using the example loan stated in each table. They are estimates based on a fixed-rate loan at a constant rate and are not your actual loan terms. This is educational information, not financial advice.