When you're preparing to buy a home, you're probably focused on your down payment. But there's another major cost to plan for: closing costs. These fees typically add up to 2%–5% of the home’s purchase price, and they’re due at the finish line — when the keys are almost in your hand.
What Are Closing Costs?
Closing costs are a collection of fees paid to your lender, title company, and other service providers to finalize the sale. These costs vary based on your location, loan type, and provider, but typically include:
- Loan origination fee
- Credit report fee
- Appraisal fee
- Title insurance and title search
- Attorney or escrow fees
- Prepaid taxes and insurance
- Recording fees
How Much Should You Budget?
If you're buying a $300,000 home, your closing costs could range from $6,000 to $15,000 depending on your location and loan terms. This is in addition to your down payment, so it's important to include it in your upfront budget.
Ways to Reduce Closing Costs
1. Shop Around for Lenders
Not all lenders charge the same fees. Request loan estimates from multiple providers to compare interest rates and closing costs side by side.
2. Negotiate with the Seller
In some cases, you can ask the seller to contribute toward your closing costs as part of your offer — especially in a buyer’s market or when the seller is motivated.
3. Explore Down Payment and Closing Cost Assistance Programs
Many cities and states offer programs that help cover not just down payments but also closing costs. These might be grants, second mortgages, or forgivable loans.
4. Look for Lender Credits
Some lenders offer credits toward closing costs in exchange for a slightly higher interest rate. This can be a smart tradeoff if you’re short on cash upfront.
5. Avoid Unnecessary Add-Ons
Review your closing disclosure carefully. Question any unfamiliar charges and consider removing optional services that you don’t need.
Conclusion
Closing costs are a normal part of buying a home, but that doesn’t mean you have to pay more than necessary. With a little planning and smart negotiation, you can reduce your out-of-pocket expenses and move into your new home with confidence — and a little extra cash in your pocket.