Closing Costs
The collection of fees and prepaid items, separate from the down payment, that a borrower pays at closing.
Closing costs typically run 2%–5% of the loan amount on a purchase and similar on a refinance. They include lender charges (origination, underwriting, discount points), third-party services the lender requires (appraisal, credit report, flood certification, title work), government recording and transfer fees, and prepaid escrow items like the first year of homeowner's insurance.
Many of these costs are negotiable or can be shopped, title insurance providers, in particular, often vary in price for the same coverage. Lender credits can offset closing costs in exchange for a slightly higher rate, which is the right move for buyers short on cash but with steady future income.
Sellers can sometimes contribute toward a buyer's closing costs through a seller credit, subject to program limits. On a tight budget, structuring an offer with a seller credit can mean the difference between affording the closing table and walking away.
Related terms
Other terms you'll see alongside Closing Costs
The total amount of money the borrower must bring to the closing table in certified funds.
The lender's charge for processing the loan application and underwriting the file, expressed as a percentage of the loan amount or a flat dollar amount.
Prepaid interest paid at closing to permanently lower the loan's interest rate.
Money the seller contributes toward the buyer's closing costs or prepaids as part of the negotiated sale.
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