Real Estate
What is Closing Costs?
Definition
Closing costs are the fees paid at the completion of a real estate transaction, typically 2% to 5% of the purchase price. They include lender origination, appraisal, title insurance, recording fees, prepaid taxes and insurance escrow.
Real-World Example
On a $425,000 home purchase, closing costs run about $12,750 (3%). Sellers may credit a portion in a buyer's market; buyers should always request a Loan Estimate three days after applying to preview these numbers.
Why It Matters
Underestimating closing costs is a top reason first-time buyers exhaust their reserves at signing. TILA-RESPA's Loan Estimate makes shopping lenders straightforward.
Frequently Asked Questions
Can closing costs be rolled into the mortgage?
On many loan programs, yes — through lender credits or a higher interest rate. It shifts cost from cash today to interest tomorrow.