Closing costs are the upfront expenses required to complete a mortgage loan and transfer ownership of a property. They are separate from your down payment and may include lender charges, appraisal and title services, government fees, prepaid taxes and insurance, and initial escrow deposits.
Closing Costs vs. Cash to Close
These terms are related, but they are not the same:
| Term | What It Means |
|---|---|
| Closing Costs | The total upfront costs associated with the mortgage and real estate transaction, excluding the down payment. |
| Cash to Close | The total amount you must bring to closing after accounting for the down payment, closing costs, deposits already paid, lender or seller credits, and other adjustments. |
What Do Closing Costs Usually Include?
Closing costs vary by loan type, property, location, loan amount, and the services required. Common categories include:
1. Lender and Loan Charges
Fees connected with processing, underwriting, and preparing your mortgage. Depending on the loan, these may include an origination charge, underwriting fee, processing fee, credit report fee, or discount points.
2. Appraisal and Property-Related Services
An appraisal helps determine the property's market value. Other property-related charges may include flood certification, tax monitoring, inspections, or specialized reports when required.
3. Title and Settlement Services
Title professionals research the property's ownership history, help resolve title issues, coordinate settlement, and may issue lender's and owner's title insurance policies.
4. Government and Recording Fees
State and local governments may charge fees to record the deed, mortgage, and other documents. Transfer taxes, documentary stamp taxes, or similar charges may also apply depending on the transaction and location.
5. Prepaid Expenses
Some costs are paid in advance at closing, such as prepaid interest from the closing date through the end of the month and the first year of homeowners insurance.
6. Initial Escrow Deposits
When taxes and insurance are escrowed, the lender may collect funds at closing to establish the escrow account used for future property tax and insurance payments.
7. Other Transaction Costs
Depending on the property and contract, other costs may include homeowners association fees, condominium-related charges, survey fees, pest inspections, attorney fees, or home warranty costs.
How Much Are Closing Costs?
There is no single fixed percentage that applies to every mortgage. The amount depends on the loan program, purchase price, property type, location, insurance and tax requirements, interest-rate choices, and negotiated credits. Your personalized Loan Estimate is the best starting point for reviewing expected costs.
Illustrative example only
Who Pays the Closing Costs?
Buyers commonly pay many loan-related and settlement costs, while sellers commonly pay costs associated with their side of the transaction. However, the purchase contract, local customs, loan program, and negotiations determine who pays each charge.
Seller Credits
A seller may agree to contribute toward certain buyer closing costs, subject to the purchase contract and the limits of the selected loan program.
Lender Credits
A lender credit can reduce the amount paid upfront. In many cases, the borrower accepts a higher interest rate in exchange for the credit, so the long-term cost should be reviewed carefully.
Closing-Cost Assistance
Eligible buyers may be able to use a down payment or closing-cost assistance program. Program availability, income limits, property requirements, repayment terms, and eligibility rules vary.
Financing Certain Costs
Some refinance transactions or specialized loan programs may allow eligible costs to be included in the new loan amount, subject to program rules, equity, appraisal, and qualification requirements.
When Will You See the Costs?
Loan Estimate
After you apply and provide the required information, the Loan Estimate shows the estimated loan terms, monthly payment, closing costs, and estimated cash to close. Use it to understand the proposed transaction and ask questions early.
Closing Disclosure
For most covered mortgages, the lender must provide the Closing Disclosure at least three business days before closing. It shows the final loan terms and itemized costs. Compare it with your latest Loan Estimate and immediately question unexpected changes.
Closing Day
Before sending funds, confirm the exact amount, acceptable payment method, and verified wiring instructions with the settlement or closing agent. Never rely solely on last-minute emailed wiring instructions.
How to Prepare for Closing Costs
- Ask for a clear estimate early in the process and review every section of your Loan Estimate.
- Budget separately for the down payment, closing costs, moving expenses, repairs, and emergency savings.
- Do not make large purchases, open new credit accounts, or move money between accounts without first speaking with your loan officer.
- Keep documentation showing where your closing funds came from, including bank statements and records of any permitted gifts or grants.
- Verify all wiring instructions by calling a trusted, independently confirmed phone number for the closing agent.
Know Your Numbers Before Closing
At 1st Florida Lending, we help borrowers understand their loan options, estimated closing costs, and cash-to-close requirements before the closing date.
Speak With a 1st Florida Lending Loan Specialist
Frequently Asked Questions
Are closing costs included in the down payment?
No. The down payment is applied toward the purchase price. Closing costs are separate charges and prepaid expenses connected with the loan and property transfer.
Can closing costs change before closing?
Yes. Some amounts can change because of updated services, the closing date, taxes, insurance, contract amendments, or other permitted circumstances. Review changes with your loan officer and settlement agent.
Can I shop for any closing services?
Your Loan Estimate identifies services you may be permitted to shop for. Ask your loan officer which providers you may choose and whether using a different provider could affect timing or cost.
Are discount points always required?
No. Discount points are generally optional unless the selected pricing or loan terms include them. One point equals 1% of the loan amount and is paid upfront in exchange for a lower interest rate.
Do refinances have closing costs?
Yes, refinances can include many of the same loan, appraisal, title, recording, prepaid, and escrow-related costs as a purchase loan.
What if I do not understand a fee?
Ask before closing. Your loan officer or settlement agent should explain who is charging the fee, what service it covers, whether it changed, and whether alternatives are available.